Thursday, March 14 11:57:25
Ernst and Young's latest Eurozone Forecast (EEF), Spring edition has slashed Ireland's 2013 GDP growth forecast from the previous 1pc to just 0.1pc, citing the impact of austerity Budgets and sluggish growth among our trading partners.
It said that Ireland has made a lot of progress since the start of the financial crisis; however, short-term growth prospects are still weak.
"In light of the latest budget, which included further fiscal tightening worth E3.5bn (approximately 2pc of GDP), EEF has revised it GDP forecast downwards for Ireland from 1pc to 0.1pc for 2013, before we start to see sustainable growth of 1.9pc in 2014 and accelerating to 2.5pc in 2015," it said.
Marie Diron, senior economic adviser to the Ernst and Young Eurozone Forecast said that the success of the 10-year bond issuance by the Irish government is very good news for the economy.
"It is further evidence of investors' confidence in the sustainability of public finances and cements Ireland's restored access to financial markets. Similarly successful bond sales would encourage rating agencies to upgrade Ireland's credit rating. Achievements such as this, is one of the main factors behind our forecast of a return to solid growth from 2014 onwards".
Since 2008, employment in the periphery has fallen by 9pc or 5 million people. In the case of Spain, Ireland and Portugal, employment has fallen further than output, thereby providing a boost to productivity. Unemployment levels in Ireland are forecast to remain stagnant in 2013 at 14.9pc before we start to see a modest improvement of 13.8pc in 2015, the report says.
"We expect consumer spending in Ireland to fall almost 2pc in 2013, with marginal growth in 2014, due to a weak labor market, as well as tax hikes and spending cuts announced in the budget."
Meanwhile, investment in Ireland, already 55pc below its 2007 level, is forecast to fall by 9.5pc in 2013, before starting to rise in 2014 to 4.1pc. This is due to a combination of tight credit conditions, resulting from ongoing problems in the banking sector, and a lack of appetite among firms to borrow money for investment.
"The return to very modest growth that we expect to see in the peripheral countries in 2014 will initially be driven by business investments and exports and subsequently, once the labor market starts to improve, by consumer spending," said Ms Diron.
By 2014, EEF expects the peripheral eurozone countries with the fastest export growth to be Greece, Ireland and Spain - 9.3pc, 4.4pc and 4.1pc respectively. These are the three countries that have seen the largest improvement in their relative unit labour costs, and hence competitiveness, since 2008. This will help these countries exit recession and allow gains in economic activity to accompany job creation.
Mike McKerr, Managing Partner Ernst and Young added, "Globalisation continues to define our business landscape with increasing levels of cross-border trade. Ernst & Young's Globalisation report recently ranked Ireland sixth globally in terms of trade and first on openness and ease of trading. Encouraging rankings such as these, a rise in investor confidence, increased export competitiveness and improvement in public finances; suggest that Ireland is likely to return to sustainable growth in the medium term".