Leading economist issues warning over recovery
The recession is technically over but it won't make any difference for most people until at least next year, a leading economist said today.
An expected announcement tomorrow that Ireland's economy has officially turned a corner was denounced by Friends First chief economist Jim Power as a statistical illusion.
Figures to be released by the Central Statistics Office (CSO) showing economic improvement in the first three months of the year are skewed by surging sales in the chemical and pharmaceutical industries, he claimed.
Mr Power said in reality joblessness would continue to get worse, thousands of businesses would still struggle for survival, new taxes would be brought in and the cost of living still needed to be slashed.
"The bottom line is, to generate economic activity that will result in meaningful job creation and improvements in tax revenues, you are going to have to see a recovery in consumer spending and in business investment spending," he said.
"I have to say I don't see either of those conditions until 2011 at the earliest.
"So I think the economic recovery story is more illusory than real."
In his quarterly outlook, Mr Power predicted the Government would be forced to bring in at least two more austerity Budgets as it battled to bring order to the public finances.
Despite a gradual improvement in the world economy, Ireland's struggles are made worse by increasing nervousness among international money markets about lending to countries they think might not be able to repay debts, he said.
In order to cut national borrowings as quickly as possible, the Government would inevitably introduce water charges - likely at a flat rate of around €175 per house because no water meters have been installed, he forecast.
While there was some recent "kite-flying" over a new property tax in December's Budget, he claimed it was more likely to be brought in next year once the public has been softened up for the levy.
Although the cost of living was continuing to drop there wasn't a large enough decrease in some consumer prices, Mr Power said. Food, clothing and footwear prices particularly should come down further in the near future.
Apart from small pockets around the country, demand for houses would remain low for the next three to four years and prices should fall by another 5pc this year - after a 7pc dip in the first six months, he predicted.
"Hopefully that will represent the bottoming out of the cycle and we will see some stabilisation in 2011," Mr Power added.
He said consumer confidence, which affects spending, remained low with a recent rebound in the retail industry mostly down to increased car sales.
Thousands of small and medium-sized businesses "are hanging on by a thread at the moment" because they can't get any credit from the banks.
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