–EU Exec’s Forecasts For Ireland More Pessimistic Than Government’s

(MNI) – Ireland must undergo a painful but essential adjustment to
facilitate a gradual recovery in its economy, the European Commission
said on Monday as it published its Autumn economic forecasts, which
foresee a more pessimistic outlook than the Irish government.

It warned that its government debt and deficit data are “subject to
further risks” related to the country’s banking sector.

Ireland’s budget deficit is predicted to be 32.3% of its gross
domestic product this year, the European Commission forecast. It
predicted that the country’s budget deficit will be 10.3% in 2011 and
9.1% in 2012. The EU’s stipulated limit for budget deficits is 3% of
GDP.

The Commission’s deficit figures are higher than the Irish
government’s own, due to the former’s less favourable growth
assumptions. In its recovery plan published earlier this month, the
Irish government said it expected the budget deficit to be 9.1% of GDP
in 2011 and 7.0% of GDP in 2012.

Late on Sunday, European Union finance ministers approved an E85
billion financial support plan for Ireland’s banks and its government
finances. They also outlined a permanent crisis mechanism for the
Eurozone – effective from 2013 onwards – cementing a deal that they hope
will limit the impact of the debt crisis and stop it from spreading to
other countries in the Eurozone.

“Ireland is currently undergoing a period of unavoidable and severe
adjustment after the crisis brought to an end the build-up of imbalances
during the preceding boom years,” the European Commission said in its
forecast document.

It noted that the “large consolidation packages adopted since
mid-2008, amounting to some 9% of GDP in 2009-10, have barely halted
the deterioration of the underlying general government balance.”

The Commission’s forecasts predicted that Ireland will emerge from
recession next year, growing 0.9% over the year, up from a 0.2%
contraction this year. It predicted growth of 1.9% in 2012.

Those forecasts are more pessimistic than Ireland’s government’s
own forecasts of 1.75% GDP growth next year and 3.25% in 2012.

For inflation, the Commission predicted a 1.5% drop in Ireland’s
harmonised index of consumer prices this year, followed by a rise of
0.4% next year and 0.6% in 2012.

It said it expected the country’s unemployment rate to be 13.7%
this year, 13.5% next year and 12.7% in 2012.

Ireland’s gross government debt level will rise to 107.0% of its
gross domestic product next year, up from 97.4% this year, the
Commission predicted. In 2012, the debt level will be 114.3% of GDP, the
Commission predicted.

The EU limit on government debt is 60% of annual GDP.

After Ireland asked for external help to manage its debt burden,
the European Union and the International Monetary Fund offered loans
worth E67.5 billion as part of an E85 billion package which will see
Ireland put up E17.5 billion from its national reserves.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]