Ireland slowly recovering, austerity must continue - c.bank

DUBLIN, April 5 Fri Apr 5, 2013 6:00am EDT

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DUBLIN, April 5 (Reuters) - Ireland's central bank said on Friday the country's gradual economic recovery was broadly on track, barely changing its growth forecasts but warning the government it could not afford to ease back on its austerity programme.

It predicted gross domestic product would expand by 1.2 percent, a touch below the 1.3 percent foreseen three months ago, and kept its 2014 growth forecast at 2.5 percent.

Bailed out in late 2010, Ireland has been one of the few euro zone economies to grow over the past two years and closed in on weaning itself off emergency assistance last month by raising 5 billion euros ($6.42 billion) in a landmark 10-year bond sale.

The International Monetary Fund, one of Ireland's bailout lenders, struck a similar note on Wednesday when it said the economy would grow by 1.1 percent this year, the first time in six quarterly reviews it has not marked down its view for 2013.

However like the IMF, which cautioned that Ireland's gradual recovery remained highly uncertain, the central bank said its medium-term assessment for the export-focused economy relied on a pick-up in external demand from the second half of 2013.

"The gradual recovery of the Irish economy is continuing," the central bank said in its latest quarterly review.

"The prospects for such a recovery must be treated with some caution, however, given the high degree of uncertainty regarding the near-term outlook for world demand."

The bank said that while recent surveys, particularly in consumer sentiment, pointed to an easing in the rate of decline in the euro zone, the bloc was facing a delayed emergence from recession, and that would have knock-on effects for Ireland.

Export growth - driven completely by the booming services industry - would fall to 2.5 percent this year as a result, down on the 3 percent expected in January, while expansion in 2014 was marked down by just under the same amount to 5 percent.

That should be mostly offset by a lower than previously expected drop of 0.2 percent in consumer spending this year and slightly quicker rise of 0.4 percent in 2014. The fall in domestic demand may, finally, be nearing an end, the bank said.

With any growth in the domestic economy slight at best, unemployment is still forecast to fall only slightly, to 13.9 percent next year even though the estimated rate fell to 14 percent over the last two months.

The bank added that while unemployment rates for those with the lowest levels of education were around four times higher than those with third-level qualifications, in absolute terms the majority of the unemployed come from higher education.

It gave a cool reception to the government's promise to voters of a 20 percent reduction in the 5.1 billion euros of austerity measures planned by 2015, following a deal struck with the European Central Bank to ease its the burden of its bank-assumed debt.

"Full implementation of the announced budget measures remains essential to preserve market confidence and to keep a buffer against negative shocks," the bank said.

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