Country Report Ireland May 2009

Summary

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 exceed 12% in 2009-10. The risk of default remains 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 non-performing loans from the banks 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 acceptance in a second vote in October 2009, although this is far from certain.

Political opposition to an emergency budget in early April was muted despite the massive increases in taxes that it contained.
After his dismissal as a junior minister, John McGuinness criticised the government's performance. The intervention was highly damaging, underscoring the view that it has not reacted proportionately to the crisis.
The design of a National Asset Management Agency, which will become a repository of non-performing property loans, now dominates the policy-making debate.
During the course of April, international financial markets calmed somewhat and indicators from most asset classes showed that the aversion to risk has come off peaks earlier in the year.
This resulted in a narrowing of Irish government yield spreads over the benchmark ten-year German bund from a peak of almost 300 basis points in the early months of 2009 to around 200 basis points in later April.
According to the harmonised measure, prices dropped year on year by 0.7% in March 2009. In a short period Ireland has gone from being one of the EUs highest-inflation economies to its lowest.

Source: Country Report

This report covers the following industry codes:
SIC Code: 39
NAICS Code: 31