Irish economy to contract by 7% according to Bank of Ireland’s Quarterly Economic Outlook

Given the continual decline in GDP, which slumped by an annual 7.5% in the fourth quarter of last year, the economy will contract by 7% in 2009.

  • Employment to fall by over 7%
  • Inflation to fall by 2.7%
  • 2010 may signal global recovery

Given the continual decline in GDP, which slumped by an annual 7.5% in the fourth quarter of last year, the economy will contract by 7% in 2009. The following year is more likely to see an end to negative growth, on the assumption that the global economic cycle beings to show signs of improvement in the next nine months, according to Bank of Ireland’s Quarterly Economic Outlook published today, 9 April 2009.

“This will be the fourth year in the past fifty years that GDP has fallen in Ireland. Despite the global downturn, Irish exports, industrial production and the external sector provided significant stimulus to the economy, a feat we expect to see repeated this year. The plunge in house building was the main catalyst behind the downturn in 2008: residential construction fell by some 35% on average, and by an extraordinary 50% in the final quarter of 2008. We expect the decline to be in the order of 45% this year”, commented Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland and author of the Outlook.

“Unemployment has risen sharply and the data available for 2009 implies that employment has fallen at an even faster pace in recent months. We are likely to see an average fall of 7% or 152,000 based on the assumption that the pace of lay-offs slows. There is no clear evidence to date that there has been a substantial exodus of migrant labour, the numbers of non-Irish nationals in the labour force fell marginally from 355,000 in 2007 to 349,000 in 2008.

“Overall inflation is likely to fall deeper into negative territory over the next few months, as the annual decline in mortgage interest costs increases even further, due to the reduction in mortgage interest costs and falling energy prices. Assuming ECB interest rates bottom at 1% and oil prices remain broadly unchanged at current levels, the annual rate of decline in both mortgage and energy costs will ease back sharply over the second half of the year. As a result, we expect inflation to fall by 2.7% on average in 2009.

“The passage of time, low interest rates and falling inflation are conditions that normally precipitate an end to a recession. These are now present internationally and in Ireland’s case prices look likely to fall which will offer some support to real incomes. However, the impaired nature of the global banking system adds an additional layer of uncertainty, regarding the timing and strength of a recovery. The return of positive growth in the US offers the best hope for the Irish economy, as domestic demand is likely to remain depressed in 2010”, concluded Dr. Dan McLaughlin.

Labour Market (annual average ‘000)

2007 2008 2009 (f)
Employment 2117 2114 1953
Labour market 2218 2241 2213
Unemployment 101 137 260
Unemployment Rate (%) 4.5 6.1 11.8



Irish Economy Forecasts



2007 2008 2009 (f) 2010 (f)
Personal Consumption 6.3 -0.8 -7.5 -3.0
Government Consumption 6.0 2.1 -1.0 -3.0
Capital Formation 1.2 19.9 -25.0 -14.0
Stocks (% of GDP) -0.1 0.2 0.5 0.6
Exports 6.8 -0.4 -5.0 2.0
Imports 4.1 -4.4 -10.0 -4.0
GDP 6.0 -2.3 -7.0 0.0
GNP 4.1 -3.1 -7.5 0.0


For reference:

Dr. Dan McLaughlin
Group Chief Economist
Bank of Ireland Global Markets
Tel: 01 609 3221

Anne Mathews
Media Relations Manager
Group Corporate Communications
Bank of Ireland
(01) 604 3836 / 087 246 0358