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Quarterly Economic Commentary, Summer 2008

24/06/2008

By Dr. Alan Barrett, Dr. Ide Kearney, Martin O'Brien (ESRI)

Some of the main findings of the analysis include:

• We expect GNP to fall by 0.4 percent in real terms in 2008. This implies that Ireland will experience its first recession since 1983.
• This forecast for 2008 represents another in a series of downward revisions to our forecasts for 2008. In earlier Commentaries, our downward revisions were related to an acceleration in the construction downturn. This time, it is our revised forecast for consumption that contributes most to the overall revision. We now expect consumption to grow by just 1 percent in 2008. This is a dramatic slowdown from the last three years when consumption growth has averaged over 6 percent.
• For 2009, we expect a modest upturn with GNP expected to grow by almost 2 percent.
• A number of stark implications arise from these forecasts:
  • We expect the General Government Deficit could be 2.8 percent of GDP in 2008 and 3.9 percent of GDP in 2009. Hence, we expect that the 3 percent deficit limit under the Stability and Growth Pact will be breached in 2009.
  • On average across the year, the number employed in 2009 will be lower than the corresponding number in 2007.
  • We expect net outward migration to resume in 2009, at a rate of 20,000.

In our overall assessment of the economy, we look at two issues.

• Although it appears that the 3 percent deficit limit under the Stability and Growth Pact will be breached in 2009, we argue that the required fiscal correction be spread beyond 2009. Efforts should be made to contain the deficit and to ensure value for money in public spending but the 3 percent mark should not be viewed as a binding constraint within a single year once a medium-term strategy is in place to correct the deficit.
• With unemployment on the increase, the state's agencies with responsibility for education, training and job placement need to ensure the delivery of effective programmes to those who are likely to experience difficulties in regaining employment.

Notes for editors:

1. Members of the media are invited to attend a media briefing to be held at the ESRI (Whitaker Square, Sir John Rogerson's Quay) on Monday June 23rd, at 10.00am.
2. The Quarterly Economic Commentary Summer 2008, by Dr. Alan Barrett, Dr. Ide Kearney, and Martin O'Brien, will be published on Tuesday 24th June.

There is one Special Article in this Quarterly Economic Commentary, as follows:
"Ireland's Innovation Performance: 1991 to 2005", by Nola Hewitt-Dundas (School of Management, Queen's University Belfast, nm.hewitt@qub.ac.uk) and Stephen Roper (Centre for Small and Medium Sized Enterprises, Warwick Business School, University of Warwick, Email: Stephen.Roper@wbs.ac.uk).

END.

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