The ESRI Quarterly Commentary – Recession, Higher Taxes and 8% Unemployment

As per last night’s post, the full details are below. The clear responsibility for the prolonged downturn the ESRI expect is the bad state of government finances. They don’t have the capacity or room for manouvere to use the budget counter-cyclically and ramp up government investment in economic activity.

- We now expect GNP to contract by 1.3 percent in 2008, down from our
summer forecast of 0.4 percent. However, it is with regard to 2009 that
we have introduced a more severe downward revision. We now expect real
GNP to contract by 0.7 percent next year.

- Our forecast for a recession in 2008 is still largely the result of
the housing downturn. However, a fall in the volume of consumption is
also forecast. For 2009, a downturn in commercial building is expected,
along with a fall in the Government’s consumption of goods and services.
Weak international conditions in both 2008 and 2009 leave little scope
for external demand to fill the gap left by falling internal demand.

- Based on figures from the Department of Finance, it appears that the
general government deficit will be 5.5 percent this year. Our forecasts
include a Budget for 2009 in which this same deficit holds in 2009. It
should be noted that even stabilising the deficit will still require
severe cuts in spending and tax increases, which will themselves
contribute to the economic downturn.

- Employment is expected to fall in 2008 by 14,000 and by 47,000 in
2009. The rate of unemployment is expected to average 6.1 percent in
2008 and to jump further in 2009, averaging 8 percent. The net migratory
outflow in 2009 is now expected to be 30,000.