Central Bank Forecasts Economy to Grow in 2012

The Central bank released its quarterly report last week with its revised forecasts for 2011 and 2012.  The outlook they predict is GDP growth of 0.6% in 2011 and 2.1% in 2012.  This essentially translates into the first annual increase in economic output since 2007.  Growth is good for the economy.  It suggests more money will be available and that the government will have a higher tax take.  However, when we take a closer look at the figures it can be noted that the sole factor driving economic growth in the forecasts is exports and to a lesser extent investment. 

Domestic consumption is forecast to contract further in 2011 and 2012.  This essentially means that the central bank expects consumers to spend even less in 2012 than they are doing now.  While export lead growth is important for a small open economy such as Ireland, a recovery in domestic consumption is to be hoped for.  More domestic consumption further increases economic growth and can also generate employment. 

However, the Central Bank forecasts that employment will only increase by 0.2% in 2012.  This is much less than would be hoped for and will result in an unemployment rate of 13.9%, which is still incredibly high compared to a few years ago.

The government’s strategy is to get more people back to work, and while the export sector will generate some employment, the sectors engaged in exporting are not necessarily labour intensive.  Domestic consumption is required to generate local jobs around the country.  This is the reason we are being encouraged by the government to spend more as oppose to saving.  However, with increasing taxes and more uncertainty in the economy, it is unlikely that consumers will increase their spending.