The Irish economy is headed for a sharp slowdown following years of rapid economic growth. As a result, growth is expected to be markedly slower in 2008 with only a small improvement in 2009, according to PricewaterhouseCoopers.
The latest economic analysis from PricewaterhouseCoopers estimates that the Irish economy is headed for a sharp slowdown in 2008 and has little scope for any significant recovery in 2009. Growth in Ireland is expected to slip to 2% in 2008 and remain fairly subdued in 2009, as the economy suffers from subdued domestic and foreign demand during both years.
The combined effect of squeezed household incomes, falling house prices and job losses raise the prospect of weak consumer spending during the next two years. Businesses will be squeezed as their profit margins come under pressure from rapidly rising input prices and falling demand. Unfortunately, overseas demand is unlikely to provide any respite to Ireland’s domestic woes. Key export markets are already experiencing or heading into a prolonged period of weak growth – the US is either in or on the verge of recession, growth forecasts for the UK have been trimmed of late and Euroland growth looks set for a slowdown during 2008 and 2009.
The report also concludes that risks factors are firmly weighed to the downside and the outcome in terms of Irish economic growth during the next two years could be much worse than currently anticipated. In particular, the size and duration of the US slowdown is crucial in terms of continued exports demand, financial market stability and FDI flows that have all contributed significantly to Irish growth in recent years.
At the European level, the ECB is currently in the difficult position of trying to contain price pressures and inflation expectations, without derailing Euroland growth prospects. The ECB’s monetary policy stance to date suggests that it is prepared to allow the Euroland economy to cool in order to bring inflation back under control. Interest rate cuts are anticipated towards the end of 2008, as inflation eases and the need to boost economic growth takes precedence at the ECB.
Yael Selfin, Head of Macro Consulting at PricewaterhouseCoopers, commented that:
“The Irish economy currently looks quite fragile as households are squeezed by the triple whammy of falling house prices, rising consumer price inflation and the prospect of increased job losses. Conditions in the labour market are crucial to helping Ireland grow its way out of the current downturn, which is expected to extend well into 2009.”
Notes to editors
- The table below sets out the PricewaterhouseCoopers main scenario for economic growth in the Euroland and UK economies in 2008 and 2009:
Table 1: GDP growth (annual % change)
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