Economic Eye - Summer Forecast 2011

Overview

The Ernst & Young Economic Eye - Summer 2011 forecasts that the Island of Ireland economy will endure a fourth consecutive year of contraction in 2011.

Modest GVA growth in Northern Ireland (NI) of +1.2pc will be insufficient to offset the forecast contraction of 2.3pc in GDP in the Republic of Ireland (ROI) economy.

Across the Island export businesses, responding to a growing world economy, have managed to perform well. But problems continue to mount for businesses selling within the domestic economy in sectors such as construction and retail. Tax rises are beginning to bite, inflation remains high in NI and is rising in ROI, interest rates rises have started/are likely soon, there is downward pressure on
wages, ROI's population is forecast to decline due to out-migration and confidence remains low.

While savings data in ROI indicates that households have started to repair their finances and thus there may be more room for consumer spending to grow/fall less - an upside risk to the forecast - the Economic Eye forecast assumes that the de-leveraging of household debt relative to disposable income has some way to go yet. As a result, the forecast for ROI is for another year of contracting consumer spending (-4.1pc), which will act as a significant drag on growth, alongside falls in government spending (-3.8pc) and investment (-15.7pc).