- The recovery has been slow and uneven
- That pattern may continue in 2012
- Export growth to offset another fall in domestic demand
The Irish economy returned to growth in 2011, at least as measured by annual GDP, but the pace of recovery has been slow and uneven: GDP is now seen to have bottomed in the final quarter of 2009, but has risen by just 1% over the past eight quarters, with bouts of solid expansion followed by periods of contraction. GNP has been more volatile still, rising by 4.8% through 2010 but ending 2011 down 7.1%. “The stop-start nature of the recovery and the dichotomy between the depressed domestic sector and a more robust export sector have no doubt been factors behind the fragile nature of business and consumer confidence, and the near term outlook is for a continuation of that trend”, according to Bank of Ireland’s Quarterly Economic Outlook published today.
According to Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland and author of the publication: “Export growth, the main positive in the economy, slowed through 2011 and the current recessions in the euro zone and the UK represent a clear downside risk in 2012, although the US is expected to expand at a reasonable pace. We expect exports to continue to grow but at a slower pace than last year, which alongside sluggish imports means that net external trade will again provide the main stimulus to Irish GDP. Business spending may rise modestly but domestic demand overall is expected to decline further, with falls expected in Government consumption, construction and consumer spending. The latter may be less pronounced than seen last year, however, as employment and wages may stabilise. Indeed employment actually rose in the final quarter of 2011 for the first time in four years, although we do not expect a significant decline in the unemployment rate this year. Inflation is expected to be lower than in 2011 but the projected fall may not be as steep as previously envisaged, given the rise in oil prices in the first quarter of the year. The net result is that we expect another year of very modest growth but against a volatile quarterly pattern, with GDP forecast to rise by 0.6%, which is broadly in line with the current consensus.
“The economy is now in broad balance as income exceeds spending in both the household and corporate sectors, with these surpluses offsetting the public sector deficit. The latter appears to be comfortably on target in relation to the 2012 Budget and, indeed, underlying tax revenue is well ahead of projections. This sits uneasily with some of the recent economic data, which has been on the weak side, and adds a further degree of uncertainty to the near term outlook”, concluded Dr. Dan McLaughlin.
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