Ireland’s €15 billion 4-year budget cut, which its Taoiseach (what they call the Prime Minister) says was an Irish decision, not a European one, may not be enough, according to a report from Davy Research.
The research report spells out some awful realities about Ireland’s potential for growth.
- Currency “headwinds” will hit export growth
- Consumers aren’t going to add anything to Irish GDP in 2011, with consumption declining 0.8%
- Savings in the country will decline in 2011, but higher taxes will prevent that cash from being turned to disposable income.
- Unemployment is set to hang around 13%.
- Investment will continue to fall
The effect on growth of fiscal cuts will be negative, but the magnitude should not be overstated. Some part of this negative impact will have already been seen in this year’s declining real consumption (to the extent that forward-looking consumers factored in potential cuts and saved accordingly). The high savings ratio shows a private sector keen to pay down excessive debt, which will provide upside to consumption expenditure when employment prospects improve.
So Ireland’s domestic consumption isn’t coming back, the private sector isn’t investing, the government is cutting more spending, and the euro isn’t exactly the most competitive currency right now ($1.38). So how is that terrible unemployment situation going to improve?
The only hope is export jobs, and those aren’t there if the currency doesn’t become more competitive.
But, on a positive note, export volumes are increasing. The export recovery appears to be threading a needle at the moment.
Photo: Davy Research