Irish economy to shine as euro zone periphery struggles on - poll

Wednesday 22 January 2014 19.06
New poll says that growth in Ireland will outpace the wider euro zone this year and next
New poll says that growth in Ireland will outpace the wider euro zone this year and next

Ireland's economy is set to be one of the euro zone's brightest lights this year and next but rampant unemployment will impede progress towards a full recovery in Greece and Spain, a Reuters poll has shown.

Growth in Ireland will outpace the wider euro zone in 2014 and 2015 as the country's economic reforms pay off, according to the poll of nearly 50 economists and strategists.

"Recent signs on the Irish economy have been encouraging, particularly in relation to the labour market," said Alan McQuaid of Merrion Stockbrokers.

"After a disappointing economic growth performance in 2013, based on the official numbers, the Government's official 2% GDP growth projection for 2014 should be met if not bettered, assuming no major external shocks," he said.

The NTMA returned to the bond markets this month after Ireland  became the first euro zone state to complete a bailout programme in December. Borrowing costs are falling and it has been upgraded by Moody's - the last credit agency to rate the country as junk - to investment grade.

But the rest of the euro zone's struggling peripheral countries will barely eke out growth after spending the better part of the last decade in recession or depression.

Over a quarter of Greece's GDP has been wiped out in the last five years and the poll suggests it will grow only a meagre 0.1% this year, far slower than Athens' projections of 0.6%. That pace of expansion will not do anything for unemployment, currently running at nearly 28%.

Portugal and Spain will both escape recession with relatively strong rates of growth this year as renewed bond market confidence in them offers support. But high unemployment and weak consumer spending are holding them back.

Greece has been on an EU/IMF lifeline since 2010, with loans granted in exchange for spending cuts and reforms to correct its fiscal imbalances and render its economy more competitive. Athens and its international lenders expect the economy to recover this year after six years of recession in a row which have driven unemployment to record levels.

IMF data suggests that GDP has come down from $343.2 billion in 2008 to $249.2 billion in 2012.

Greece hopes its euro zone partners and the IMF will provide further debt relief once Eurostat confirms that it attained a small primary budget surplus last year, excluding debt servicing costs.

Portugal is expecting to rebound in 2014 after a three-year recession sparked by its debt crisis - its worst downturn since the 1970s. The economy has already passed its lowest point, with activity rebounding in the second quarter of 2013 and continuing to do so into the third. Still, the government expects a 1.8% contraction through all of 2013.

Lisbon hopes the recovery will gather steam and produce growth of 0.8% this year, smoothing Portugal's planned exit from its bailout in June. Still, despite rising economic activity and sharply falling bond yields, many economists say the country will only be able to move forward from the rescue package by securing some sort of precautionary loan deal from creditors to replace it.

Spain emerged from a two-year recession in the third quarter of 2013 and, according to Economy Minister Luis de Guindos, saw quarterly growth of a larger-than-expected 0.3% from October to December. 

That has prompted many to raise growth expectations and some to claim that the country will beat official forecasts of a 0.7% expansion in 2014. However, the poll corresponds with IMF projections for 0.6% growth in 2014 and comes out higher than IMF forecasts for 2015 at 1.2%.

Stringent austerity measures, including tax hikes and spending cuts, have helped slash one of the euro zone's highest public deficits closer to Brussels' target of 6.5%, easing concerns the government cannot control its finances.

Deep imbalances remain, however, including an unemployment rate of over 25% and a debt-to-GDP ratio which is expected to rise to almost 100% by the end of the year. As in Greece, around a quarter of Spain's workforce will remain unemployed through to 2016 at least.

With the government facing elections in 2015, economists also worry that Prime Minister Mariano Rajoy may shy away from taking further unpopular measures to boost a dire tax take and reduce the deficit to its 3% of output target by 2015.