Country Report Ireland July 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 without 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 fast.
• We believe that the economy will suffer depression-type conditions during 2009-10, because of the collapse in the construction sector and depressed private consumption.
• The budget deficit is estimated to exceed 12% in 2009-10. The risk of default is small but real.
• The Irish banking system is in a precarious state despite liability guarantees and public recapitalisation. In April the government announced a plan to buy from the banks non-performing loans with a book value of up to 90bn.
• 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 the treaty to be accepted in a second vote, to be held on October 2nd 2009.

Monthly review

• In early July the government confirmed that it would hold a second referendum on the EU's Lisbon treaty on October 2nd.
• The decision followed confirmation, given by the other member states at a summit meeting in late June, that Ireland would receive a series of guarantees on issues of concern to Irish voters-tax, military neutrality and abortion.
• In local and European Parliament elections, the two governing parties were severely punished by voters. Also of significance was the poor performance of opponents of the Lisbon treaty.
• The publication of half-year public finances figures has added to concerns about the sustainability of Ireland's budgetary position, as the decline in the two largest tax revenue streams accelerates.
• GDP contracted by 8.5% year on year in the first quarter, while the fall in domestic demand was even more marked, at 15.5%. These contractions were larger than in any other high-income OECD country.
• Exports contracted only slightly in the first quarter. This was far less than in peer countries, where large double-digit declines were the norm.
• The year to the first quarter of 2009 saw a profound worsening of labour market conditions, with a year-on-year drop in total employment of 7.5%-equivalent to the loss of one in every 13 jobs.

This report covers the following industry codes:
SIC Code: 60;15;49;20;47;48
NAICS Code: 52;23;22;311;48;517