Ireland Set for Recession This Year: ESRI

Ireland will this year see its first recession since 1983, but recovery will be faster than when the economy shrank then, a government-funded research body said on Tuesday.

An end to Ireland's decade-long property boom and a slowdown in consumption will lead to a 0.4 percent fall in GNP in real terms in 2008 after rising 4.5 percent last year, the Economic and Social Research Institute, which is independent but partly funded by the finance ministry, said in a quarterly report.


The recession, which ESRI defined as a year-on-year fall in gross national product (GNP), will push the 2009 budget deficit above what EU rules allow.

A more resilient labor market and healthy exports will make recovery smoother than in the 1980s with GNP growing 1.9 percent in 2009.

A low level of national debt at around 30 percent of GDP will ease the pressure on public finances as well, it added.

"A huge amount of what we're saying is based on somewhere between a hope and an expectation that the exports can take off," Senior Research Officer Alan Barrett said.

Most of Ireland's exports are sold in the euro area, which has not been as hard hit by the global downturn than the UK or the United States, with the economic activity of Ireland's main trading partners seen recovering next year, ESRI said.

"In terms of 2007, export performance was really strong, especially in services exports," said Ide Kearney, co-author of ESRI's Quarterly Economic Commentary.

"Looking forward, we expect services to take up the baton from manufacturing."

"No Death Knell"

Tax revenues have steadily declined in the first five months of 2008, with full-year tax receipts likely to be cut by lower output, consumption and employment figures, ESRI said.

It expects the general government balance to show a deficit of 2.8 percent of gross domestic product this year after a 0.3 percent surplus in 2007 and worsen to a 3.9 percent deficit in 2009.

"On the face of it, a breach of the 3 percent ... (EU Stability and Growth Pact) guideline in a single year does not signal the death knell of fiscal prudence and given our very low debt levels could well be afforded," it said in the survey.

Finance Minister Brian Lenihan said earlier this month that weak tax receipts meant tight control over current spending would be needed next year but pledged to borrow in order to fund planned capital investment in the country's infrastructure.

Government finances were 3.6 billion euros ($5.6 billion) in the red at the end of May, compared with an exchequer surplus of 266.5 million euros at the same point last year.

"What the government experienced in terms of the revenue buoyancy of the last number of years is simply never going to be repeated," Barrett said.

Data this month showed the volume of Irish retail sales dropped at the fastest annual rate in five years in April, while the number of people claiming unemployment benefit rose last month to its highest level in almost a decade.

The economic downturn will also cut GDP by 0.4 percent this year after a 5.3 percent rise in 2007 and reverse the heavy flow of immigration seen during Ireland's Celtic Tiger years from the mid-1990s, ESRI said.

"A return to positive (economic) growth in 2009 and 2010 ... can be expected with a reasonable degree of confidence, something which could not be said in the mid-1980s," it said.