ESRI’s downward growth revision in line with PMCA’s original estimate

Thursday, January, 2011

The ESRI – whose income derives mostly from the State via the taxpayer – has revised its GDP growth forecast for Ireland in 2011 down significantly from 2.3% in October 2010 to 1.5% in its latest forecast (January 2011).

The new forecast is in line with the OECD’s and the IMF’s forecasts before Christmas, which have been commented upon by PMCA and which are in line with PMCA’s original figures (see OECD Economic Outlook – Ireland (17 Dec 2010); Positive Economic News – Irish GDP and GNP up in latest quarterly statistics (16 Dec 2010); and Severe budget unveiled for Ireland (7 Dec 2010)).

As originally stated, PMCA considers that the Irish economy will have contracted in 2010 (GDP is expected to be down by about 0.3% on the previous year) (the official CSO figures are due shortly) and that the economy will grow weakly in 2011 (by up to c. 1.5%, meaning that even the latest ESRI GDP forecast is optimistic).

As for growth prospects beyond 2011, PMCA believes that there is too much uncertainty – political as well as economic – to provide a well-informed forecast of the situation at this stage, except to say that the environment is likely to generally remain very challenging.  The new government will have a huge amount of work to do – reforming the economy as well as continuing to ‘fire-fight’.

Positively, exports are doing well and this is highlighted in the ESRI’s latest commentary.  Its economists forecast exports growing by 6% this year.  This figure is plausible and, according to PMCA’s econometric analysis (The positive role of exports in job creation in Ireland, Nov 2010), could result in a 2.4% boost to employment or potentially up to 44,000 additional jobs (given demographic and labour market inflexibilities, it is unlikely that this number of new jobs will be created in practice but even a percentage of the estimated jobs potential being realised as a result of the predicted growth in exports would be a very welcome development for the country).

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