The worst may be over

The Economy

The Central Bank has recently released its quarterly economic bulletin and has marginally revised its forecasts on how the economy will perform this year, indicating the worst of the recession maybe over. In its previous economic bulletin, the Central Bank states the economy will shrink by 7.8% this year (a slight improvement on the 8.3% decline forecast by the bank in July 2009).After an annual rate of decline of 8.4% in the first six months of 2009, the pace of deterioration is set to ease in the second half of the year due to the steady improvement in the world economy.

Despite this gradual improvement within the economy, it states that Ireland’s recovery shall be slower then other countries. The fall in economic growth is mainly due to a sever contradiction in domestic demand with both consumption and investment expenditure falling sharply. For 2010, the Central Bank has stated that the Irish economy is likely to record negative growth of 2.3% with a return to modest, sustainable, growth by the year 2011. However, Ireland’s recovery is largely dependent on a recovery in growth with regard to Irelands major trading partners.

The Issue of Unemployment

The Central Bank has reported that employment is likely to continue to decline at a moderating pace in the second half of 2009 and for much of 2010 with a “reasonable” prospect of some stability by the end of the year. The Central Bank predicts that unemployment will average 12% in 2009 (with a moderate improvement on the previous prediction of 12.8%). It states the unemployment will rise to an average of 14% in 2010 (a small decrease with regard to the previous prediction).

 

 Other Economic Issues

The Central Bank also mad specific comments about the other following areas:

Irish Exports: The overall Performance of Irish Exports has been quite robust in 2009 given the weakness in worldwide demand. Exports of goods and services have increased by 0.2% in the second quarter after a significant fall of 0.7% in the first quarter and represent a much stronger performance than most of Irelands trading partners.

Inflation: The Central Bank has stated that prices are forecast to fall by 4.2% in 2009. It says that inflationary pressures are likely to remain subdued into 2010 as consumer demand continues to decrease significantly.

Housing Output: The housing output is set to decline significantly to 22,000 units with a additional decline to about 10,000 in 2010. This is a massive fall of 90% from the peak level of housing output in 2006.

Consumer Spending: Consumer spending as a whole is forecast to decline by 7.6%. The Central Bank states that given the likelihood of a further fall in disposable incomes, consumption is set to decrease further in 2010, although at a slower pace than in 2009.

Property Taxation: Referring to the recent Commission on Taxation report, the Central Bank has stated that economic and fiscal merits of a property tax which would provide a stable source of revenue while not affecting labour market incentives and whose design should be “both equitable and practical”. The Central Bank has stated that the speed and extent of economic recovery will also depend on how quickly Ireland’s competitiveness can be restored. It must include a number of initiatives on a variety of fronts including pay and non-pay cots, infrastructure improvements and continued measures to encourage innovation and research and development.

Public Sector Cuts: The Central Bank has publically backed the recommendations in An Bord Snips cost cutting report and stated that the document provided a “valuable framework”. The Central Bank also reported that there had been significant increases in the following aspects:

 Social Welfare payments increased by 100%
 Child Benefits quadrupled
 Public Sector Pay doubled from 2001 to 2007

Despite the recent calls from union representatives for tax increases on the wealthy instead of public sector cuts, the Central Bank has stated that marginal tax rates have increased to 52% due to recent tax increases. The Central Bank also stated that there is also a need to have more competition for sheltered sectors such as education, utilities and public transport.

Environmental Taxation: The Central Bank has also backed the prospect of introducing taxation on aspects for carbon and water taxes as “reasonable”.

 

 

 

 

 

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