IMF Cuts Forecast for Irish Economic Growth

08 September 2011 - Which Way to Pay

IMF Cuts Forecast for Irish Economic Growth

The International Monetary Fund (IMF) announced it favours case-by-case mortgage solutions and will back the Government in its ruling out of the widespread debt-forgiveness scheme.

IMF has cut the Irish growth forecast as a result of the global slowdown, penciling in an estimated 0.4% growth in GDP this year, down from its previous forecast of 0.6%. As such, the forecast for next year has dropped from 1.9% to 1.5%. This news is sure to impact up on the anticipated announcement by the Minister of Finance, Michael Noonan regarding the December Budget.

Furthering this, the IMF has also rejected any plan for widespread debt-forgiveness, saying instead that Ireland should simply handle the issue of mortgage debt on a "case-by-case'' basis.

Although the impact on Ireland’s overall debt is predicted by the IMF to be “modest”, it does mean that an estimated €4bn in tax rises as well as large spending cuts are to be expected. With this in mind, the IMF has warned Government not to be too ambitious in the 2012 Budget;

"You need to strike a balance,'' said Craig Beaumont, the IMF's mission chief to Ireland speaking in Washington at the reveal of the third Irish bailout plan. He warned that too many cuts and tax rises would have a dampening effect on growth.

However, IMF made clear that it was "very pleased and very impressed'' by Ireland's performance so far this year, adding that the downgrades to growth were solely the result of external factors:

"A global slowdown is expected to dampen the pace of recovery in Ireland," it said. "The growth outlook for key trading partners -- the euro area, the US and the UK -- has worsened substantially.

"Staff have therefore lowered projections for growth in demand for Irish exports, especially in 2012," IMF stated.

Overall, the IMF seemed to convey an upbeat tone regarding Irish recovery, but Mr Beaumont said that while bond spreads were declining to reflect this, further progress was needed. He said stresses in the wider eurozone were one of the reasons that bond yields had not fallen further for Ireland.