April 29, 2011 / 9:23 PM / 8 years ago

UPDATE 2-Ireland cuts growth forecast but questions remain

* Ireland downgrades 2011 growth to 0.8 pct from 1.7 pct

* Says debt/GDP to peak at 118 pct in 2013, not 102.5 pct

* Downgrade follows cuts in forecasts by analysts, IMF

* Analysts say new lower numbers may be optimistic (Adds analyst quotes, details, background)

By Conor Humphries

DUBLIN, April 29 (Reuters) - Ireland cut its growth forecasts sharply on Friday and said its debt would surge as it brought its economic projections closer to market expectations.

But forecasts that the economy would grow 0.8 percent this year and that Ireland’s sovereign debt would peak at 118 percent of economic output in 2013 remained too rosy for some.

Ireland is under pressure to prove its economy has turned a corner after one of the sharpest contractions ever seen in the developed world and avoid speculation it could be forced to restructure some of its debt.

The finance ministry said it expects gross domestic product to grow 0.8 percent in 2011, down from the 1.7 percent it forecast in December. It will then rebound to grow at 3 percent per year between 2013 and 2015, it said. For details see [ID:nLDE73S1R1]

That compares to a 0.9 percent 2011 forecast by the European Commission and a 0.5 percent estimate by both the International Monetary Fund (IMF) and economists polled by Reuters. [ID:nLDE7301ED]

“The government is moving its forecasts reasonably in line with the private sector, which is a good thing,” said Eoin Fahy, chief economist with Kleinwort Benson Investors in Dublin. “But it will need a lot of hard work to get to 3 percent growth by 2013. It’s achievable, but a bit of a stretch.”

DEBT GROWING FAST

Ireland’s debt will peak at 118 percent of GDP in 2013 rather than the 102.5 percent forecast just four months ago, the finance ministry said in the submission to the European Union published on its website on Friday.

That is far smaller than the 158 percent of GDP the IMF forecasts for fellow euro zone member Greece in 2013 and is below the 120 percent level which credit rating agency Moody’s said was “sustainable” for Ireland. [ID:nLDE73E1QM]

Dublin’s top priority is to convince investors that it will get its debt pile under control. Speculation that Greece may restructure its debt has pushed the cost of Irish euro borrowing to all-time highs. [ID:nLDE73H19J]

The IMF has predicted Ireland’s debt will peak at 125 percent in 2013 and says it needs medium-term growth of around 2 percent to keep debt sustainable. [ID:nWLA8262]

“There is no surprise the government is cutting forecasts, but the scale of the cut in growth is a little less than expected,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

“There would still be questions asked about the growth outlook for 2012 and 2013 and that will be the main concern for the market,” he said.

The Finance Ministry increased its forecast for the size of Ireland’s budget deficit for each of the next four years, saying spending would surpass income by 10.0 percent this year, up from December’s forecast of 9.4 percent.

But the ministry said it would meet an EU target of 3 percent of GDP by 2015, with a deficit of 2.8 percent. The EU had originally wanted Ireland to reach that level by 2014 but allowed the extension due to spluttering growth.

The finance ministry said it saw exports as driving growth, with exports growing 6.8 percent this year and an average of 5 percent over until 2015.

But analysts said those projections may suffer if international growth falters and the euro continues to strengthen.

If the government misses its growth targets, it will be forced to impose new austerity measures to meet the terms of a 85 billion euro EU/IMf bailout, likely undermining support for Ireland’s newly elected government.

“To achieve anything close to 2.8 percent (deficit target) by 2015 we would need even deeper cuts,” said Constantin Gurdgiev, a lecturer in finance at Trinity College Dublin, who described the forecasts as extremely optimistic. “How they will materialise is under very significant question.” (Writing by Conor Humphries; Editing by Kenneth Barry)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below