Country Report Ireland September 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 chances of a premature election (that is, before 2012) are close to 50%.
• 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 forecast to exceed 12% in 2009-10. The risk of default (or a bail-out to prevent this) 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

• Despite the government's belief that a rejection of the Lisbon treaty would have grave consequences for Ireland's position in the EU, the governing parties have yet to begin campaigning.
• The government's proposal to support the financial system, by buying large quantities of non-performing loans from the main banks, has become subject to growing and increasingly vehement criticism.
• In late August the main opposition party, Fine Gael, said that it would oppose the establishment of the National Asset Management Agency (NAMA). This raised the political temperature considerably.
• The NAMA issue is not only diverting attention from the Lisbon referendum campaign, but is threatening the stability of the two-party coalition.
• The leadership of the junior coalition partner, the Green Party, faces growing pressure from its membership to oppose the creation of the NAMA, at least as currently proposed. The issue could cause the government to collapse.
• The EU-wide harmonised index of consumer prices declined by 2.2% in the year to June, more than in any other EU country. In July prices fell by 2.6%.
• On a seasonally adjusted basis, and excluding the motor trade, retail sales volumes dropped by 7.8% in the year to the second quarter.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1;60
NAICS Code: 11;52