Growth Expected 'From Third Quarter'

Ireland's Central Bank has said today it expects the economy to enter a period of growth beginning from the second half of this year.

In the first good news for Ireland's economy since the beginning of the mass contraction experienced during the credit crunch, the Central Bank said the second half of the year would experience a "modest" upward trend before growth levels of 2.4 to 2.8% in 2011.

In its second forecast summary of the year, despite the long awaited positives, the Central Bank said the prospects for domestic spending returning to normal remained "subdued", with the outlook for construction investment being particularly "unfavourable".

In its comment piece prefixing the report, the Central Bank said that a major factor in Ireland's recovery would be its international performance and attracting investment.

"The timing and the strength of a recovery will depend heavily on the economy’s external

performance. While the global economy recovered more strongly than expected in the

second half of 2009, the performance of the major industrialised economies is patchy and

uneven."

However, the Bank also said that although many of the "reforms" in the labour market and the drop in the wage levels would attract more jobs and investment from abroad, some further "reform" was still required.

The report said: "While much of the economy is characterised by flexibility, there are some sectors and markets that would benefit from further reform to increase competition… such as health care, health insurance, utilities and public transport. As recognised in the recent negotiations, public sector reform is also another key ingredient in boosting the performance of the economy.

"Flexibility in work practices and other measures to maximise the provision of services for a given cost level are essential. Widespread acceptance of the need for reform, and an agreed approach to implementing it, would be a major contribution to confidence in the economy at this point."

The Bank also pointed to "favourable" events in the banking sector as a positive step for the economy. The Bank said the restoration of the banking sector to a condition where it can assist recovery was a "key focus" at the moment.

"First, severely impaired loans are being removed from the balance sheet of banks through their purchase on discounted terms by the National Asset Management Agency (NAMA). Second, recapitalisation is occurring.

"This is intended to ensure that, at no point over the next few years, will banks' capital positions fall below an acceptable level by international standards.

Recapitalisation will create a buffer in the banks' capital positions which will place them in a better position to access funding and assist in the recovery of the economy."

(DW/BMcC)