THE IRISH economy will grow “quite rapidly” during the 2011-2015 period if its international competitiveness is restored, the Economic and Social Research Institute (ESRI) forecasts in a paper published today.
The institute’s forecast is based on a number of key assumptions, including the implementation by the Government of the fiscal measures flagged in April’s emergency budget over the next 12 months.
The ESRI believes a major reduction in wages and costs is required to allow Ireland to benefit from the expected upturn in the global economy in 2011.
“It is important that public policy should do all it can to speed this essential adjustment. A revised partnership agreement which recognised the importance of reducing costs, broadly defined, would help in this regard,” the paper says.
Recovery Scenarios for Ireland gives two potential scenarios based on whether the world economy returns to growth in 2011 or 2012.
The institute believes the Irish economy has a potential growth rate of 3 per cent but that, when recovery commences, a short period of above-average growth will occur.
It believes the measures announced by the Government in April, if implemented, will deal with approximately half of the “structural deficit” or that part of the deficit that is due to bad domestic policies.
The elimination of the remainder of the structural deficit over the period to 2015 would not require fiscal measures as severe as those currently envisaged by the Department of Finance, according to the ESRI.
One of the authors of the report, Prof John FitzGerald, told reporters yesterday that swift action would reduce the pain associated with the recession and the duration of high unemployment. “Focusing on the banks is taking away from the real issue, which is unemployment and getting the show back on the road,” he said, adding the banking problem had to be fixed to get credit flowing.
The institute expects unemployment to grow rapidly to a peak of approximately 17 per cent by 2010. If the world economy begins to grow in 2011, then unemployment could drop to 6-7 per cent by 2015. A longer global recession would delay the domestic process.
Another author of the report, Dr Ide Kearney, said the recession will leave a “permanent scar” on the Irish economy. Output will be 10 per cent below what would otherwise be the case if the global economy recovers in 2011, and 15 per cent below if the global recession lasts a year longer.
The other authors of the report are Adele Bergin and Thomas Conefrey.
Central Statistics Office figures released yesterday showed lower interest payments on mortgages led to a sharp fall in the Consumer Price Index in April, leaving the annual rate of deflation at 3.5 per cent.
Meanwhile, a report on the economy from Davy stockbrokers said the pace of decline in economic activity has slowed.