Hopes fade for 2010 economic recovery

A new report on the Irish economy believes that the recession will last throughout much of next year and hopes of a recovery in 2010 are fading.

Stockbroker Davy forecasts that economic output as measured by gross national product (GNP) will shrink by 3.4% next year after a 2% decline this year.

The report describes the deterioration in the economy since March as remarkable, blaming the tightening of the availability of credit.

Davy warns that the dole queue will grow to 8.5% by the end of next year, but inflation will fall to 1%.

It also says lower consumer spending elsewhere will affect exports, with the banking crisis hitting financial and business service exports in particular. Low-tech manufactured goods and food products destined for the UK will suffer.

On the property market, the stockbroker firm says real progress will not be made until property prices fall to a clearing level and mortgage availability improves. It also believes tax revenue will drop by 8% next year, mainly due to the weak property sector.

The decline in construction activity will continue. House completions will slip to 25,000 from 50,000 in 2008. New completions of commercial buildings are also likely to fall. Meanwhile, public capital spending is set to decline 8% by the end of 2009, said Rossa White, economist at Davy.

The report expects the economy to grow in the third quarter of next year before a renewed dip in the final quarter. The outlook for 2010 is “cloudy” according to Davy.

The stockbroker firm predicts that the cutback in capital spending by the Government next year is unfortunate but not too severe.

The severe credit squeeze will continue as banks struggle with non-performing loans to the construction sector, hurting business investment and consumer spending.

It adds that Ireland is not breaking EU rules on deficits as any economy experiencing a decline in gross domestic product is not exposed to censure.

Article courtesy of The Evening Echo

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