EU Will Remain In Recession, But Irish Economy Will Grow

04 May 2013

The EU will remain in a recession for a second year, but the Irish economy will continue to grow, according to European Commission forecasts.

Ireland will have the third highest GDP growth in the eurozone this year and next.

However, this is relative given that France, Spain, and the Netherlands will miss deficit targets.

The commission left its growth forecasts unchanged at 1.1% this year and 2.2% for next. This is 0.2% lower than the recent government expectation.

The deficit for this year is higher by 0.2% of GDP than that predicted a few months ago, reflecting the increasing cost of servicing debt and higher one-off costs linked to the IBRC liquidation.

Eurostat is examining the statistical treatment of the liquidation of IBRC and the restructuring of the promissory notes and their impact on deficit and debt.

The payment of AIB dividends on preference shares held by the Government via the issuance of ordinary shares may be reclassified as deficit-increasing transfers, as was the case last year when it accounted for 0.2% of GDP, the commission noted.

The outlook for next year looks better, with the deficit expected to reduce to 4.3% of GDP of which 1.4% would come from fiscal adjustment measures from the budget and the ongoing expenditure freeze.

The report said the full positive effect of the promissory note exchange will be realised once the IBRC-liquidation-related transaction costs are settled later this year. Poor domestic demand and decreasing demand for exports will reduce the external surplus.

Public debt will peak at 123% this year and with a primary surplus and a pickup in economic growth; will fall to 119% next year.

Unemployment will be lower than in earlier forecasts at 14.2%, but this will be because of emigration.

The Department of Finance said the commission “continues to see Ireland achieving its fiscal targets through the forecast horizon”, and said the forecast underlined the return of market confidence.

Meanwhile, growth will be negative in France, Italy, Spain, and the Netherlands and only Italy will achievement its government budget deficit target.

The outlook for Italy was problematic also.

While they were expected to come close to balancing the government budget, economic commissioner Olli Rehn warned that in view of the country’s ever increasing high debt level, they must keep the deficit below 3% this year “and beyond”.

Source: http://www.irishexaminer.com/business/eu-will-remain-in-recession-but-irish-economy-will-grow-230328.html