Ireland Business Forecast Report Q4 2012

Core Views Ireland’s economy will post negative growth in 2012 as fiscal austerity, household deleveraging and a recession in Europe weigh on activity. We forecast real GDP to contract by 0.5% in 2012, following a 0.7% real terms expansion in 2011. The outlook for the Irish economy remains extremely depressed, with a swift recovery from its post-2007 woes an unlikely outcome. Instead, the pace of Ireland’s recovery will be tied to the fortunes of its exports sectors, and thereby global economic conditions. The recessionary conditions that prevail in Europe and the low growth being observed in the US suggest the Irish economy will remain anaemic through the coming quarters. Ireland’s affirmation of the eurozone fiscal pact provides the Irish government with some leverage for negotiation with its eurozone creditors over Ireland’s more-than-likely second bailout. Although the government remains committed to its fiscal austerity programme we believe that Ireland will miss its current fiscal deficit and debt targets on account of the less favourable external environment that now prevails. Key Risks To Outlook Ireland is very much dependent on exports for economic growth. Therefore, any continued deterioration in the external demand climate would almost certainly derail Ireland’s incipient recovery. In particular, the potential for excessive US fiscal tightening, a policy misstep in the eurozone debt crisis, or a very hard landing in China cast doubt over the sustainability of Ireland’s recovery.