Michael Noonan (Limerick City, Fine Gael)

There is a good deal of uncertainty at the moment as evidenced by the wide range of GDP projections for this year not only for Ireland, but also for the euro area. The recent downgrading of forecasts by the IMF, including those for Ireland, reflects heightened concern about growth prospects in the euro area and the wider global outlook. As a small, open economy whose recovery is being driven by exports, Ireland will be affected by weaker euro area growth. However, the substantial competitiveness improvements we have seen in recent years will provide some support. It is important to note that a weakening of activity in our main trading partners is already factored into the Department of Finance forecasts for economic growth which underpin the 2012 budget.

The budget forecast is for real GDP growth of 1.3% in 2012. This forecast was prepared on the basis of economic information, domestic and international, available up to the end of November 2011 and it was mid-range at that time. Given the highly uncertain environment, the budget documentation also pointed to several risks to this forecast, some to the downside and some to the upside. These risks remain valid.

While the weak external outlook is of concern, there have also been some positive developments since budget time, not least of which is the trajectory of ECB interest rates which appears more favourable than was the case in November. In addition, recent exchange rate movements will provide some benefit for the exporting sector. Some of the economic data, domestically and internationally, have not been as poor as some were assuming. For example, high frequency survey data shows that economic activity in the euro area increased in January, the first such increase in five months, while at home consumer sentiment picked up, as did new manufacturing export orders. Moreover, concerted action has been taken at European level to address the weaknesses that have become evident in the design of monetary union. Measures include the so-called six-pack of legislative reforms as well as the agreement on a fiscal compact to ensure fiscal discipline in participating member states. I am confident that this strong policy response will contribute to a restoration of confidence in the euro area as we go through 2012.

During the coming months my Department will continue to monitor the economic situation in terms of positive and negative developments and, as is the norm, it will publish an updated macro-economic assessment in the spring in the context of the stability programme update. It is anticipated that the update will be published in April in line with the requirements under the European semester agreed by member states last year.

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