ESRI Predicts Further Tightening In Ireland's Economy This Year

A new report by the Economic and Social Research Institute (ESRI) suggests that Ireland's economy will contract once again this year, with only low growth likely next year.

In its latest quarterly economic commentary, the ESRI says the economy is "bouncing along the bottom" and forecasts that unemployment is set to remain high next year

Notwithstanding the considerable obstacles to growth facing Ireland's main trading partners, results for 2011 show that output grew for the first time in four years, expanding by 1.4% in GDP terms.

However, domestic demand remained very weak and GNP, which they consider to be a better measure of Ireland's economic performance, fell again, contracting by 2.5%.

Their report forecasts that GNP will fall marginally again this year, before increasing modestly in 2013.

They also predict that unemployment will remain high at 14.8%, declining only slightly next year and that the balance of payments surplus is expected to continue to rise.

According to ESRI, in the past two to three years uncertainty about the international environment has limited Ireland's recovery.

Looking forward, they believe that the recent measures introduced by the European Central Bank have proved more convincing to date than previous attempts and look set to provide the necessary foundations upon which wider demand conditions can gradually improve.

Most observers expect a modest revival of growth in the UK and eurozone next year and, provided uncertainties relating to the US federal debt ceiling are resolved, the Irish economy should benefit from a relatively more benign external environment in 2013.

Services exports are predicted to be the main driver of export growth this year, although goods exports, particularly those of indigenous industries, are likely to decline modestly.

However they maintain reservations about the potential impact of the investment stimulus on the Irish economy.

In addition, despite the improvement in the Irish public finances so far, the scale of the adjustment still required is still very substantial.