BRUSSELS (MNI) – Global growth could have peaked in the second
quarter of this year, as the exit from stimulus measures, policy
tightening in some countries and the peaking of the inventory cycle
combine to cause a drag in the second half, the Irish central bank said
on Friday.

“Recent data suggest that the global growth rate may have peaked in
the second quarter and that the expansion will occur at a slower pace in
the second half of the year,” the Irish central bank said in its
quarterly bulletin.

“This is likely to reflect a number of factors including deliberate
policy tightening in some emerging economies, the peaking of the
inventory cycle and the weaker impact of stimulus policies on growth
rates,” it added.

The export-dependent Irish economy – which is emerging from a deep
recession – relies on the strength of the global recovery for its
growth.

But the central bank noted that international economic developments
had been mixed and that “there are ongoing concerns about the strength
of the recovery in some countries.”

The fact that the early economic recovery had exceeded
policymakers’ hopes, was partly due to “the exceptional support from
monetary and fiscal policies,” the central bank said.

It has “become clear,” the central bank said, that “some of these
same policies are generating potentially damaging side-effects, in
particular, the emergence of high and unsustainable fiscal deficits.”

Across Europe policymakers are trying to combine the withdrawal of
economic stimulus measures and reducing debt without hampering the
fragile economic recovery.

The bank said that this withdrawal, “when combined with the
fragilities that remain in the financial sector” could “slow or, in a
worst-case scenario, even derail the international recovery.”

Eurozone growth will be hit by the negative short term impact of
debt reduction, the Irish central bank said, but “the long run benefits
of such measures are expected to outweigh these short run costs.”

The European Central Bank’s staff project that Eurozone GDP will
grow by between 0.7% and 1.3% this year and by between 0.2% and 2.2% in
2011.

Eurozone inflation excluding energy “is expected to remain subdued
given the significant amount of spare capacity in the economy and the
expectation of a gradual economic recovery,” the bulletin said.

“Consumer inflation expectations, as measured by the European
Commission survey, support this view of subdued domestic price
pressures,” it added.

Tax rises as governments try to control their deficits represent an
upside risk to the inflation outlook, while weaker-than-expected growth
is a downside risk, the bulletin said.

The central bank said it expects Irish gross domestic product to
rise 0.8% this year and 2.8% next year, after contracting 7.6% in 2009
and 3.5 in 2008.

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

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