Quarterly Economic Commentary, Winter 2010
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20/01/2011Citation:
Barrett, Alan; Kearney, Ide; Conefrey, Thomas; O'Sullivan, Cormac, Quarterly Economic Commentary, Winter 2010, Dublin, ESRI, January, 2011Download Item:
Abstract:
The forecasts in this Commentary see GDP growing by 1? per cent in real terms in 2011
and by 2? per cent in 2012. The corresponding figures for GNP are ? per cent in 2011
and 1? per cent in 2012. Following the pattern of 2010, the growth which is envisaged for
2011 and 2012 is made up of a strong export performance together with further
contractions in domestic demand.
Exports are forecast to grow by 6 per cent in 2011 and by 5 per cent in 2012. By
contrast, consumption is expected to fall by ? per cent in 2011 and by a further ? per cent
in 2012. On-going uncertainty with respect to job stability, wages and taxation are likely to
act against any rebound in consumption spending over the forecast horizon. Government
purchases of goods and services and public investment are expected to continue shrinking
in both 2011 and 2012. We see the banking crisis as being a key factor in the continued
depressed level of both consumption and investment through an absence of affordable
credit.
Our GDP and GNP growth forecasts are lower than the corresponding forecasts which
underpinned Budget 2011. As a result, we see the ratio of general government debt to GDP
reaching 104.5 per cent in 2012, as compared to 102 per cent which is the forecast figure in
Budget 2011. As we discuss in the General Assessment, given the uncertainties surrounding all
forecasts, we would not place too great an emphasis on the difference. Instead, we take it as
being an on-going indicator of the challenges which are faced in restoring the public
finances to a sustainable path. We expect the general government deficit to be 9.6 per cent
of GDP in 2011 and 7.8 per cent in 2012.
While our forecasts envisage positive growth in both GNP and GDP for the first time
since 2007, the rates of growth are still slow. For 2011, we see the growth in GNP and
GDP being accompanied by continued employment falls as output growth is achieved
through productivity growth. Employment is expected to average 1.83 million in 2011,
down 1? per cent on the 2010 number. We do expect employment growth in 2012 but at
just 5,000, this is tiny relative to the labour force. The rate of unemployment is expected to
average 13 ? per cent in 2011 and 13 per cent in 2012. Net outward migration is forecast to
be 100,000 over the two year period April 2010 to April 2012. The highest rate of net
outflow in the 1980s occurred in 1989 when the rate reached 44,000. Hence, our forecast
for an average annual net outflow of 50,000 is high in historic terms, albeit against a larger
population base.
We expect the Consumer Price Index (CPI) to average 2 per cent in 2011 and 1 ? per
cent in 2012. For Harmonised Index of Consumer Prices (HICP), we expect 1 per cent in
both 2011 and 2012. We expect wages to fall by 1 per cent in 2011 and for them to remain
constant next year.
As referred to above, in our General Assessment we discuss how our forecasts compare
to those in Budget 2011. We also make a brief comment on Budget 2011 in which we
express some disappointment that the tax measures were so heavily focused on income as
opposed to the implementation of taxes or charges that might be expected to impact less on
economic activity such as property taxes. We note the on-going concerns surrounding the
debt crisis in the Euro Area and how this situation gives rise to uncertainty in the context of
forecasting.
Author's Homepage:
http://people.tcd.ie/kearneihttp://people.tcd.ie/barretal
http://people.tcd.ie/conefrt
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