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Growth is first victim in Irish austerity drive: Reuters poll

DUBLIN (Reuters) - Government plans to slash spending and raise taxes will shrink the Irish economy for an unprecedented third year in 2010 but it should recover to grow 2 percent in 2011, a Reuters poll showed on Monday.

Battling to convince investors that Dublin does not need a Greek-style bailout, Prime Minister Brian Cowen has pledged to squeeze out 15 billion euros (13 billion pounds) in fiscal adjustments over the next four years to tackle the worst budget deficit in Europe.

Economists surveyed by Reuters said Cowen would succeed in getting the deficit close to an EU limit of 3 percent of gross domestic product (GDP) by 2014 but the immediate impact would be a further shrinking of the former “Celtic Tiger” economy.

“While it is perverse to say that it is good news when the government is taking out nearly 10 percent of GDP in fiscal consolidation measures, the reality is that regardless of outcomes, the action needs to be taken,” said Brian Devine, economist with NCB Stockbrokers in Dublin.

“The bottom line for the period to 2014 is that the economy needs to undergo a serious adjustment following the credit fuelled property boom of the previous decade.

“The sooner this adjustment occurs ,the better footing the Irish economy will be on for the second half of this decade.”

The median forecast of 10 economists polled was for a 0.4 percent contraction in GDP in 2010, below the government’s current forecast for marginal growth and a previous revised projection made in July for 1 percent growth.


Ireland’s real estate boom started to unravel in 2007 but the real destruction commenced in 2008 when crucial property-related tax revenues disappeared, social welfare claims jumped and its banks, after years of casino-style lending, were brought to the brink of collapse.

Having notched up annual growth of 11.5 percent in 1997 as the “Celtic Tiger” boom years took off, the Irish economy shrank by more than 11 percent over the course of 2008 and 2009.

Cowen has admitted that tough fiscal measures will hit growth in the short-term but he has factored in an annual average growth rate of 2.75 percent for the period 2011-2014.

The median forecast of economists polled by Reuters shows Ireland growing 2 percent next year and 3 percent in 2012 with much of the expansion due to a strong export performance from multi-national companies based in Ireland.

“The reason people are saying it will rebound is because exports have performed very, very well in the year to date and that’s where our main growth is going to come from,” said Alan McQuaid, chief economist at Bloxham Stockbrokers.

“There are some concerns about the global economy but we’ve seen strong (manufacturing) figures from the UK and U.S. today, so if those markets rebound that will certainly help us.”

The prospect of years of austerity has knocked consumer confidence, and economists have said the unveiling of Cowen’s four-year plan in mid-November should help stabilise sentiment by removing uncertainty and dread.

Cowen has said he will frontload much of the spending cuts and tax increases in 2011 but has declined to quantify the adjustments.

The Department of Finance has set out three consolidation packages for next year of around 3 billion euros, 4.5 billion euros and 7 billion euros.

The median forecast of four economists polled by Reuters was for an adjustment in 2011 of 5 billion euros.

Editing by Hugh Lawson