IN ITS AUTUMN Eurozone Forecast, Ernst & Young revised its predictions for the Irish economy and now expects it to shrink by just 1 per cent this year.
Despite the negative growth estimate, the outlook is more upbeat than previous predictions. In their summer forecast in May, E&Y economists said the Irish economy would contract by 2.3 per cent in 2011.
“Irish GDP surprised on the upside in Q1 2011, rising 1.3 per cent,” said the report. “However, due to various unresolved issues in its domestic economy, the outlook remains subdued.”
Next year, the autumn forecast estimated there will be growth of 0.9 per cent, while in 2013 GDP could increase by 2.8 per cent.
There are even more buoyant figures in the long-term with 3.4 per cent and 4.7 per cent growth expected for 2014 and 2015 respectively.
Despite the more positive outlook, there are still some concerning figures in the report.
According to the summer forecast, unemployment rates will remain elevated this year at 14.5 per cent and will stay at 14.3 per cent in 2012. By 2015, the unemployment level could come down to 12.3 per cent, said E&Y.
The report also casts doubts on Ireland’s export-led recovery, stating it will be difficult to achieve because of increased uncertainty in the global economy.
The report also refused to rule out the possibility that Ireland may need a new bailout package that contains some element of debt restructuring.
“The Irish economy remains highly vulnerable to negative developments in the Eurozone. It is a long way from escaping the glare of the financial markets,” the report said.
Eurozone debt crisis
Staying on the right track to achieve the fiscal, financial and structural goals of the current IMF/EU rescue package will also be made more difficult because of various risks of an escalation of the Eurozone debt crisis.
“The Eurozone sovereign debt crisis shows no sign of abating,” said the report. “A default on Greek government debt now seems unavoidable.”
Commenting on the Eurozone as a whole, E&Y economists said the combination of rising financial tensions, a near stalling of growth over the summer and a less favourable international environment that previously anticipated has led to a revised forecast.
GDP in the Eurozone is expected to grow by just 1.6 per cent this year and by only 1.1 per cent in 2012.
With risks weighted on the downside, there is a 35 per cent probability that the Eurozone will return to recession.
In its ranking system, E&Y places Ireland 11th out of the 17 euro area nations in terms of predicted GDP growth over the next five years. However, only Greece and Spain are expected to have higher unemployment rates between 2011 and 2015.
Read: TheJournal.ie‘s report on E&Y’s summer forecast>
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