THE CONTINUED SLIDE in the value of the euro is likely to lead to greater economic growth for Ireland than had first been forecast, according to IBEC.
The employers’ group says the Irish economy should expand by about 1 per cent this year – double the amount predicted by the EU and IMF – because the falling value of the currency means a stronger picture for Irish exports.
A falling euro makes Irish goods more competitively priced outside the eurozone. For example, if the euro was strong, a product costing €100 could be expected to cost $140 in the US. If the euro is weak, the exchange rate means the US price could fall to $120.
“Ireland sold 62 per cent of its exports to markets outside the eurozone last year, well above the average for other member states,” said IBEC’s chief economist Fergal O’Brien.
“The annual average euro exchange rate this year against both the dollar and sterling is likely to be about 10 per cent weaker than in 2011. The Irish economy will benefit more from this than any other eurozone country.”
IBEC also said the ongoing economic slump within the eurozone as a whole could also help Ireland – because the ECB was more likely to cut its interest rates.
It said the falling interest rates could make some mortgages up to €2,000 cheaper this year; this money could then be spent by households and help to revive the domestic economy which has remained weak in spite of the growth in exports.
“This year, for the first time since 2007, the investment sector of the economy will not be a drag on growth,” O’Brien said, though he said consumer spending still remained very weak, while the poor summer weather would hurt seasonal sales.
“The major task for Government now is to restore activity in the domestic economy and get more people back to work.”
In April Michael Noonan officially downgraded Ireland’s forecast for economic growth for this year, from the 1.3 per cent predicted in the Budget last year to just 0.7 per cent.
The EU-IMF project growth of just 0.5 per cent this year – though both forecasts predate the most recent slide in the euro.