Country Report Ireland April 2009

Outlook for 2009-10

• The extent of downside risk to the Irish economy is without precedent. Even the Economist Intelligence Unit's current forecast, of four successive years of negative economic growth, may prove optimistic.
• Our central forecast is that the coalition government will remain in office, but the risks to this forecast are rising.
• We expect the economy to suffer a sharp contraction in 2008-10, because of the collapse in the construction sector, depressed private consumption and falling exports.
• The budget deficit is estimated to reach 12% in 2009-10. The risk of default remains real.
• The Irish banking system remains in a precarious state despite liability guarantees and recapitalisation by the government. In April it announced a plan to buy 90bn in non-performing loans from the banks.
• The rejection of the EU's Lisbon treaty by voters in June 2008 has generated a crisis in Ireland's relations with the EU. We expect acceptance in a second vote in October 2009, although this is far from certain.

Monthly review

• Worsening exchequer figures for the first three months of 2009 left the government with no choice but to introduce an emergency budget, aimed at stabilising the situation. This was unveiled on April 7th.
• The emergency budget aims to collect 1.8bn in higher taxes and to cut spending by 1.5bn over the next eight months. The full-year equivalent is 5bn (approximately 3% of GDP).
• The package of measures is designed to bring the deficit to 10.75% for 2009, well above the previous target of 9.5% set out in January 2009.
• The government also announced on April 7th that it will establish a new asset management agency that will purchase up to 90bn of property loans from the country's main financial institutions.
• GDP fell by 7.5% year on year in the final quarter of 2008. The unprecedented slump in output meant that GDP for the year as a whole was 2.3% lower than in 2007.
• Personal consumption growth slid from 6.3% in 2007 to a decline of 0.8% in 2008, reaching -4% in the final quarter of the year. This turnaround is attributable to falls in aggregate incomes and to an increase in the savings rate.

This report covers the following industry codes:
SIC Code: 60;2834
NAICS Code: 52;3254