Employment will fall further in 2010, with prospects for domestic demand remaining subdued, the Central Bank said today, but it repeated forecasts for “modest” upturn in the economy in the second half of the year.
In its quarterly bulletin, the bank said the fall in consumer demand was continuing to moderate, with both retail sales and sentiment indicators showing some signs of stabilisation.
However, the outlook for construction investment is still bleak, the bank said, and spending faces pressure from falling employment and incomes, and pressure for households to maintain their savings to reduce their indebtedness.
The unemployment rate could be helped by migration and a fall in labour force participation, but the report predicted it would be 2011 before output growth will be strong enough to begin to reduce unemployment.
However, unemployment will remain high next year, Central Bank assistant director of general economic services Maurice McGuire said.
The average unemployment rate in 2011 is forecast to be 13.2 per cent, compared to 13.7 per cent this year. The rate will peak at around 14 per cent later this year.
The bulletin noted that Ireland's economic recovery was heavily dependent on external performance, and predicted moderate export growth for 2010.
"While the global economy recovered more strongly than expected in the second half of 2009, the performance of the major industrialised economies is patchy and uneven," it said.
"On the basis of the projections from the main international forecasting agencies, however, demand is set to expand modestly in Ireland's main export markets in 2010, in marked contrast to the contraction last year."
Turning to the public finances, Mr McGuire noted that the premium being paid for Government borrowing over and above benchmark rates had remained stable in recent months, despite an escalation in borrowing costs for other EU countries.
Mr McGuire said there had been no signs of "contagion" for the Irish economy as a result of the Greek crisis, but that the situation emphasised the need for the Government here to stick to its adjustment plans and "broadly state" what additional measures they would take if economic activity turns out to be lower than projected.
Gross national product (GNP) shrank 11.3 per cent last year, while gross domestic product (GDP) contracted 7.1 per cent.
The economy is expected to fall by 1.5 per cent in GNP terms, with GDP falling 0.5 per cent. Next will see a return to growth, with expansion of between 2.4 and 2.8 per cent, the Central Bank said.
A rise in Ireland's competitiveness was welcome, it said, with unit labour costs declining and productivity performance better in comparison to other trading partners, but this was limited by the dependence on the UK as a trading partner, which had been adversely affected by weaker sterling in recent years.