Continued Recovery for Ireland

Irish economy on slow recovery path, led by exports

Strong program implementation has helped restore confidence in the economy

Financial sector reforms key to recovery in domestic demand and job creation

As a result, Irish bond spreads have fallen markedly since they spiked in July 2011, and are now closer to the levels seen for Italy and Spain than for Portugal or Greece.

But the crisis is not yet over, not least because unemployment remains unacceptably high at more than 14 percent. The economic slowdown in other eurozone countries makes it more difficult for Ireland to fully recover from its housing bust in 2008. In an interview, IMF mission chief for Ireland Craig Beaumont discusses Ireland’s economic prospects.

IMF Survey online: Ireland’s export-led recovery has slowed recently, in part because of the ongoing problems in the eurozone. How big a risk does this pose for the Irish economy?

Beaumont: Ireland’s GDP fell for three consecutive years from 2008 to 2010 as the economy suffered a severe bust following the credit and property boom that preceded the global economic crisis. Welcome signs of recovery started appearing in the first half of 2011, with exports growing strongly enough to offset the continued decline in spending by the private sector and the government. Data available for the second half of the year suggest weaker economic activity, but we are still estimating overall growth of almost 1 percent in 2011.

Looking to 2012, lower growth in Ireland’s main trading partners is expected to slow exports somewhat. But because Ireland exports goods such as pharmaceuticals and IT services that are less sensitive to the economic cycle than typical consumer goods, it may escape a more pronounced slowdown.

For this reason, we are still expecting positive GDP growth in 2012, in the order of ½ percent. There are some downside risks to this scenario, linked mainly to developments in the euro area, but the scale of these risks appears to have eased recently.

IMF Survey online: Has the government succeeded in plugging the hole in its public finances?

Beaumont: Ballooning budget deficits were a nasty side effect of the economic collapse, and given the spiraling public debt, the government simply had no choice but to cut back. The government undertook consolidation efforts well before the EU- and IMF-supported program was agreed, raising income taxes and reducing public sector wages and social welfare rates. Still, by 2010, the...