The European Commission has slightly lowered its growth forecasts for Ireland this year, but expects gross domestic product (GDP) to rise by 3 per cent next year, slightly higher than the growth rate of 2.9 per cent predicted three months ago.
In a relatively upbeat assessment of the Irish economy, the European Commission’s spring economic forecast highlighted Ireland’s improving job market, noting that the number of long-term unemployed fell by 9.3 per cent in the year to March 2013, while youth unemployment decreased by 8.8 per cent over the same period.
“The robust performance of the labour market remains the most visible sign of the Irish recovery, while the ongoing deleveraging in the private and the public sector continue to weigh on the speed of the recovery,” its analysis states.
However, the commission warned that the economy could be subject to vulnerabilities. The continuing effect of legacy debt as well as impaired access to finance “continue to pose risks for SMEs”, it said.
Energy prices
It also warned that Ireland's high dependence on imported energy could leave the State particularly susceptible to changes in energy prices arising from the Ukraine crisis, noting that Ireland's imports around 85 per cent of its energy needs.
In Brussels before a meeting of euro zone finance ministers, Minister for Finance Michael Noonan said the commentary was "very positive," and was in line with the feedback from the troika last week following Ireland's first post-programme surveillance visit by the European Commission.
“I’m particularly pleased that they’re predicting a 3 per cent growth rate for 2015, because it would be our ambition in Government to have growth rates of 3 per cent or more from 2015 right on to 2020. They’re the kind of growth rates that will enable us to fulfil the medium-term economic programme we have laid out.”
The Commission expects Ireland’s GDP to grow by 1.7 per cent this year, marginally lower than the estimate of 1.8 per cent forecast in February.
Unemployment is expected to fall over the next few years, dropping to 11.4 per cent this year and 10.2 per cent in 2015. The debt to GDP ratio, which hit 123.7 per cent in 2013, will fall to 121.0 per cent this year and 120.4 per cent in 2015.
Patent cliff
While acknowledging that the contracting pharmaceutical sector had an adverse effect on trade last year, the European Commission is predicting that the pace of the pharmaceutical sector's decline will slow this year as the effect of patent expiries begins to fade, estimating that output growth in the sector will stabilise in 2015.
The Commission lowered its overall growth estimate for the euro zone, projecting that GDP will rise by 1.7 per cent in 2015, compared with a previous forecast of 1.8 per cent.
Inflation is likely to remain at low levels for a “prolonged period”, the commission warned, forecasting an inflation rate of 0.8 per cent this year, and 1.2 per cent in 2015. This compares with an estimate of 1.0 per cent for this year in February.
With the European Central Bank’s governing council due to meet for its monthly rate-setting meeting on Thursday in Brussels, the bank is facing calls to tackle the persistently low rates of inflation, which is now well below the ECB’s target of just below 2 per cent.
Yesterday's forecast also suggests that France will miss its deficit target of 3 per cent in 2015, with the commission predicting France's budget deficit to be 3.4 per cent next year. Paris has been under pressure from Brussels to implement reforms to reduce its deficit.
