Quarterly Economic Commentary, Summer 2012

The external environment is again likely to be the principal factor determining growth in the Irish economy in 2012. We estimate that the Irish economy will grow by 0.6 per cent in GDP terms but remain unchanged when measured by GNP. Employment will continue to fall and an annual average unemployment rate of 14.9 per cent is expected for this year. On the assumption that the eurozone will return to growth by next year, we are forecasting that GDP and GNP will increase by 2.2 per cent and 0.5 per cent respectively in 2013. Unemployment will remain high at 14.7 per cent. In this Commentary we maintain the view that a fiscal stimulus is needed in Europe to overcome the current stagnation. However, attempts to domestically stimulate the Irish economy should be avoided. In a small open economy such as Ireland much of the impact goes directly on imports and does not lead to sustained growth. In order to grow, the Irish economy needs competitiveness gains and export growth. We note that any personal debt write-down has implications for the taxpayer through reduced bank profits or a reduced future sale value for the banks. Finally, evidence from the Household Budget Survey shows that any boost to consumption from a reduction in the savings rate may not be as great as previously thought.

Note to Editors: 1. The Quarterly Economic Commentary, Summer 2012, by David Duffy, Joseph Durkan and Eddie Casey (ESRI), will be published online on the ESRI website. 2. This Quarterly Economic Commentary (QEC) includes the following Research Notes:

• "Unit Labour Costs in Irish Manufacturing" Eddie Casey;
• "The Saving Rate during the Recession" Joe Durkan and Niall O'Hanlon (CSO);
• "The Impact of Recession on Migration: A Preliminary Analysis of Census 2011" Pete Lunn.

This QEC also includes the following Special Article:

• "The Irish Housing Market" David Duffy and John FitzGerald;

and the following Research Bulletin article:

• "Pharmaceuticals: Getting Better Value for Money" Paul K Gorecki, Anne Nolan, Aoife Brick and Seán Lyons.

The Research Notes, Special Article and Research Bulletin article will be available to download from our website. Comments and queries should be sent directly to the authors of the papers. (Note - Bulletin articles are designed to be easily accessible to a wide readership. A reference or references to the full publication is included at the end of each Bulletin article, as is the contact email address of the authors).