Bank of Ireland predicts that the economy will contract by 7% this year, and says that a recovery in the US economy offers the best hope for the economy here.
In its latest quarterly economic outlook, the bank says that 2010 is more likely to see an end to negative growth, based on the assumption that the global economic cycle begins to show signs of improvement in the next nine months.
The bank points out that despite the global downturn, Irish exports, industrial production and the external sector provided significant stimulus to the economy. He adds that this is just the fourth year in the past 50 that GDP has fallen.
Bank of Ireland chief economist Dan McLaughlin says that inflation is likely to fall deeper into negative territory over the next few months as mortgage interest rate costs decline and as energy prices ease.
'Assuming ECB interest rates bottom at 1% and oil prices remain broadly unchanged at current levels, the annual rate of decline in both mortgage and energy costs will ease back sharply over the second half of the year,' the economist predicts. He said he expects inflation to fall by 2.7% on average this year.
He also predicts that the current fast pace in the rise of unemployment will continue for the rest of the year.
'The passage of time, low interest rates and falling inflation are conditions that normally precipitate an end to a recession,' Dr McLaughlin states.
'However, the impaired nature of the global banking system adds an additional layer of uncertainty, regarding the timing and strength of a recovery,' he adds.
'The return of positive growth in the US offers the best hope for the Irish economy, as domestic demand is likely to remain depressed in 2010,' he concludes.
