THE IMF’S latest quarterly report on Ireland’s financial outlook has raised concerns that Ireland’s economy faces greater ongoing challenges than were anticipated when the bailout was first agreed.
The quarterly report, published this afternoon, says the prospects for growth in the Irish economy have deteriorated as the eurozone enters a projected recession, a move which will hurt Ireland’s export prospects.
“Ireland’s economy faces greater external and domestic challenges than envisaged at theoutset of the programme,” the report bluntly states.
It adds that household spending is likely to decline as the value of property continues to sink and the volume of household debt continues to rise.
Raising similar concerns to a European Commission report published yesterday, the report also says the European banking climate means Irish banks will find it difficult to shrink their operations as had been hoped, as banks will find it tough to sell off their assets.
This, in turn, will make it more difficult for banks to raise cash, and in turn to lend money to households in order to get them spending again.
The report was compiled by the IMF team which visited Ireland in January for the fifth quarterly review of Ireland’s progress under the bailout review, and supplements the release of €3.2 billion in bailout loans to Ireland earlier this week.
The report notes that although the yields on Irish government bonds – the cost to the Irish state of borrowing from the open market and not from the EU-IMF Troika – have fallen, they “remain high, and credit ratings are on negative outlook”.
While Ireland’s economy grew in the first half of 2011 as a result of a boost in exports, this slowed in the second half of the year – and the IMF’s projection for whole-year growth for 2011 implies that figures to be published later this month will confirm Ireland has re-entered recession.
There are positives in the report, however: the update does commend Ireland for getting its government current spending back into surplus in the second half of 2011, while all major fiscal targets for 2011 “were observed with healthy margins”.
“Policy implementation has continued to be strong,” it notes, with banks selling off €15 billion of foreign assets at better prices than had been expected.
Structural reforms had also continued at good speed, while NAMA sold more assets than had been expected, raising €4.4 billion through sales, well ahead of the target of €3.1 billion.