You are here
EU Autumn Economic Forecast poses serious questions for Ireland and Budget 2012
The EU Autumn Economic Forecast makes stark reading for Ireland and poses serious questions about Government’s reliance on exports as the basis of Ireland’s recovery. It also calls into doubt the basis on which Budget 2012 is being developed.
According to the Autumn Economic Forecast, published on November 10, 2011 the recovery of the EU economy has stopped. Sharply deteriorated confidence is affecting investment and consumption, weakening global growth is holding back exports, and urgent fiscal consolidation is weighing on domestic demand.
GDP in the EU is now projected to stagnate until well into 2012. Growth for the whole of 2012 is forecast at about ½%. By 2013, a return to slow growth of about 1½% is expected.
No real improvements are projected for labour markets, and unemployment is forecast to remain at the current high level of around 9½%. Inflation is set to return below 2% over the coming quarters. Fiscal consolidation is forecast to progress with public deficits set to decline to just above 3% by 2013 under an assumption of unchanged policies.
For Ireland, GDP growth is expected to be 1.1% in 2011 thanks to a strong export performance and despite contracting domestic demand. It's expected to be the same in 2012 but to rise to 2.3% in 2013. However these projections are precarious when our exports are reliant on a buoyant market and with the forecast for stagnation within the Eurozone countries we will be reliant on strong growth and demand in the rest of the global economy particularly in the UK and the US. At present this looks highly unlikely.
Our reliance on export led growth will not address the issue of continually falling domestic demand. Minister Noonan in his Medium Term Fiscal Statement acknowledged that “it is essential that domestic demand recovers. Indeed it is only when consumer spending and investment start increasing again, that appreciable, broadly-based employment growth will recommence.”
Inflation is expected to rise to 1.1% in 2011, up from -1.6% in 2010, driven by external energy and administered service increases. Inflation of 0.7% is now expected for 2012 and 1.2% for 2013. In the medium term, core inflation in Ireland is likely to remain below the euro area average.
The Irish labour market is showing little sign of recovery. Employment contracted by 2.1% in the year to the second quarter of 2011 and the monthly measure of unemployment has risen gradually through the year to 14.3% in September. Job growth has restarted in some export-oriented sectors but this is not likely to offset the continuing contraction in construction and public service employment this year or next. By 2013 unemployment is expected to drop only to 13.6%. This is an incredibly worrying statistic and shows that Government attempts to create jobs and boost domestic demand have so far failed.
Social Justice Ireland has presented its proposal which would see 100,000 part time jobs created for those who are long term unemployed to various government ministers and urges them to act on it immediately before the unemployment problem worsens further.