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ESRI Autumn 2011 Economic Summary
The situation in the international economy has deteriorated in recent months.
The eurozone debt crisis has not been resolved, rather it has spread, and now
two major economies, France and Italy, are pursuing restrictive policies to
contain budget deficits, in tandem with contractionary policies in Spain, Greece,
Portugal and Ireland. As a consequence, output in the eurozone economy will
perform very poorly and may contract year-on-year and is certainly likely to
contract from the end of 2011 to the end of 2012. This will have the effect of
making it difficult for all eurozone countries to meet fiscal targets. This outcome
will also hamper the restructuring of the UK economy and reduce its growth
prospects. The US economy now seems to have recovered from the poor
performance that began in the fourth quarter of 2011. Given this very
unfavourable background the Irish economy is likely to experience very limited
growth . less than 1 per cent for GDP and a fall in GNP next year. Three months
ago the possibility of building on an improved performance in 2011 made us
reasonably optimistic about growth in the economy and growth in employment.
The deterioration in the eurozone economy makes that unlikely now, though the
fiscal targets set for next year are achievable.
If the eurozone were an economy with a fiscal and monetary authority, the
present situation would call for an expansionary fiscal policy and a looser
monetary policy accompanied by a realistic level of restructuring of the banking
system. In the absence of such a structure, coordinated action is the obvious
approach, yet the structures are not there to achieve this and the ECB has
resolutely set its stance against a much more activist approach. The present
situation contains elements reminiscent of policy during the Great Depression,
when a mounting crisis was confronted by an orthodoxy that resulted in great
poverty that could have been avoided. Without decisive intervention the
eurozone economies will be seriously constrained, will grow very poorly and
make the resolution of the debt crisis more difficult.
We now expect export growth and the level of investment to be less in 2012 than
previously forecast. Total final demand will grow only by about 1.9 per cent and
domestic demand will fall again. Employment will weaken further and we expect
the labour force to decline as participation rates fall and people emigrate.
The Troika targets are likely to be realised this year, though perhaps not to the
extent we had hoped. For 2012 the targets are also likely to be realised, in spite
of the deteriorating international situation.
Source: The Economic and Social Research Institute in Ireland. The full document may be obtained by going to http://www.esri.ie/irish_economy/quarterly_economic_commen/latest_quarterly_economic/
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