Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Question 49: To ask the Minister for Finance his response to the recent downgrading of growth projections for the economy here and the wider European economy by the IMF and others; and if he will make a statement on the matter. [5609/12]

Michael Noonan (Limerick City, Fine Gael)
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There is a huge amount of uncertainty at the moment, as evidenced by the wide range of GDP projections for this year, not just for Ireland, but also for the euro area. Indeed, the recent downgrading of forecasts by the IMF – including those for Ireland - reflects heightened concern about the euro area and the wider global outlook. Obviously 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 also important to point out that a weakening of activity in our main trading partners is already factored into my Department's forecasts for economic growth that underpin the 2012 Budget.

The Budget forecast is for real GDP growth of 1.3 per cent in 2012. This forecast was prepared on the basis of economic information (domestic and international) available up to end-November 2011, and was mid-range at that time. Given the highly uncertain environment, the Budget documentation also pointed to a number of 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 for ECB interest rates which appears more favourable than was the case in November. In addition, recent exchange rate movements will provide some benefit to the exporting sector. I would also point out that some of the economic data – domestically and internationally – have not been as poor as some were assuming. For example, high frequency survey data show 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.

Over the coming months, my Department will continue to monitor the economic situation, both in terms of positive and negative developments and, as is the norm, will publish an updated macroeconomic assessment in the spring in the context of the Stability Programme Update. It is anticipated that the Update would be published in April in line with the requirements under the European semester agreed by Member States last year.