Country Report Ireland December 2008

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 three successive years of negative economic growth, may prove optimistic.
• We expect the economy to suffer a sharp contraction in 2008-10, because of the collapse in the construction sector, depressed private consumption and weak export growth.
• The Irish banking system was saved from collapse in late September by government action. However, banks may well become insolvent, requiring nationalisation in one form or another.
• The rejection of the EU's Lisbon treaty by voters in June has generated a crisis in Ireland's relations with the EU. Its membership of the bloc might be put at risk if a second referendum is not held and the treaty passed by voters.
• The 2009 budget is predicated on overly optimistic assumptions and contains no contingency sum in the event of spending overruns and/or revenue shortfalls. We expect a deficit of 9% of GDP in 2009.
• Ireland is expected to come into conflict with some of its euro area partners in 2009 because of its significant breaching of the EU deficit rules. This external pressure should assist in stabilising the public finances.
• Despite daunting challenges over the forecast period, we expect the coalition government to remain in office.

Monthly review

• Ahead of the European Council meeting in mid-December, the taoiseach (prime minister), Brian Cowen, embarked on a tour of European capitals to win backing for Irish proposals on the Lisbon treaty.
• The likelihood of a "yes" vote in a second referendum on the treaty appears to have increased, according to the latest opinion polls.
• Support for the government has fallen dramatically. An Irish Times/mrbi poll in mid-November showed government support at 18%, down 28 percentage points on a similar poll in June.
• The minister of finance, Brian Lenihan, admitted in early December that his 2009 budget deficit forecast, of 6.5% of GDP, is unlikely to be met. This comes a mere six weeks after the budget was framed.
• November witnessed a flurry of rumours of consolidations, mergers and private equity buy-outs of Irish banks. The government is encouraging this and will consider investing in banks alongside private investment.

Source: Country Report

This report covers the following industry codes:
SIC Code: 59
NAICS Code: 44