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Republic faces first recession in two decades

By Brendan Keenan

The Republic will experience its first recession in more than two decades this year — as the Irish Government was accused of 'blowing' cash from the building and property booms.

In a devastating economic analysis, the Economic and Social Research Institute (ESRI) forecast the first recession in the Irish economy since 1983.

Outlining gloomy prospects for the economy over the next few years, the ESRI said output of goods and services will fall this year — an Irish definition of recession.

Emigration will return, with a 20,000 outflow next year needed to stop unemployment going through 8%, it said.

Meanwhile, public finances will plunge into the red, and next year will burst through EU limits on borrowing, sparking potential sanctions, according to the influential ESRI analysis.

The main culprit is still the collapse in house construction, which has plunged from 75,000 units last year to just 30,000 next year. This fall is so serious, it wipes out all the growth in the rest of the economy.

In fact, the ESRI is optimistic about the rest of the economy, especially exports, although these will not be strong enough to prevent recession.

Senior ESRI researcher Alan Barrett admitted this was as much "hope as expectation" and there is a risk that the economy will do worse than forecast.

Dr Barrett said a £10bn swing in the public finances was a failure of government policy.

"Everyone knows the downturn in the public finances is because government blew the finances from the boom which everybody knew would be temporary," he said.

The reason for the much worse outlook than in the last ESRI report three months ago is personal spending.

The economists believe consumers will seriously cut back as the downturn unfolds and energy and food prices stay high.

"All the indicators point to very low consumption growth in 2008, with retail sales down more than 3% in April," said researcher Ide Kearney.

"We expect consumption growth to slow to 1% in 2008 and recover only to 2% in 2009."

With personal consumption making up two-thirds of the economy, and house-building having contributed more than a tenth, the effect of both is a fall in tax revenues and an "explosion" in government deficits.

The ESRI expects tax revenues to be over £3bn below government targets this year. Even by next year, taxes will bring in less than they did in 2007.

The Irish Government will breach EU rules on borrowing by almost £2bn next year.


From Belfast Telegraph