Weak Irish growth may hit deficit plan

City A.M. Reporter
THE clear possibility of weaker growth than Irish authorities anticipate could endanger Dublin’s plans to cut its budget deficit, the International Monetary Fund said yesterday.

Ireland has so far stayed the course with its fiscal reform plans without too much resistance from voters but there was a risk “consolidation fatigue” could set in, the IMF said as part of its regular review of Ireland’s economy.

“Staying on target is critical to retain the hard-earned credibility,” the IMF said in a statement.

The IMF said Irish GDP was projected to fall by around 0.5 per cent this year compared with 2009 and growth rates should gradually rise to about 3.5 per cent by 2015.

When delivering the 2010 budget last December, the Irish finance ministry forecast that GDP would swing to growth of 3.3 per cent in 2011 from a contraction of 1.3 per cent this year. The ministry also projected growth rates above four per cent in each of 2012, 2013 and 2014.

Ireland, praised by investors for pioneering austerity measures among indebted Eurozone countries last year, has said it is determined to push ahead with a further round of tightening in December’s budget for 2011.

It is still grappling with a wave of bank bailouts which last year gave it the biggest budget deficit in the European Union compared to the size of the economy at more than 14 per cent of GDP.

The IMF said it needed further consolidation measures of at least 4.5 per cent of GDP to reduce the deficit to three per cent of GDP by 2014.

The yield spread for Irish bonds over equivalent German Bunds was steady below 300 basis points. In contrast, the spread for debt-stricken Greece was above 800 points.