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Emigration will be one of the reasons that the Irish economy will struggle to grow in 2011, according to Ernst & Young. Julien Behal/PA Archive
Irish Economy

Ireland's economy will shrink again in 2011, says E&Y

Ernst & Young says GDP will fall by 2.3% next year, with unemployment growing – but there’s other forecasts for Celtic Tiger 2.

ONE OF THE WORLD’S biggest accountancy and auditing firms says it believes Ireland will not be able to continue its current pace of modest economic growth – instead believing Ireland will slide firmly into a second recession next year.

Ernst & Young’s Eurozone Forecast for winter estimated that unemployment rates would breach 14% and continue to rise, while GDP – the measure of Ireland’s economic output – would fall by 2.3%.

By comparison, European Commission forecasts believe Ireland’s GDP will grow by 0.9% next year, while the Department of Finance’s own estimations show a growth of 1.75%.

The Ernst & Young report, the Irish Times reports, said the government’s own growth forecasts were “overly optimistic” and that “further unpopular austerity measures” would have to be introduced by whatever government takes power in order to keep government spending under wraps.

The fact that a general election would be held early in the year, it added, meant a new government might “even back away from some of the announced measures” already confirmed by the current administration.

An Irish recovery “seems a long way off”, the Irish Independent quoted, “and the government and economy will have to overcome numerous hurdles.”

Among the factors that would drag down the economy would be the scale of emigration, which would deplete Ireland’s labour supply, a likely raise in interest rates from the European Central Bank, and the government’s necessary spending cutbacks.

While the export sector would remain steady, domestic demand would continue to slip.

Meanwhile, the UK-based Centre for Economics and Business Research has predicted a second Celtic Tiger phase of economic growth, which it says will wipe out Ireland’s budget deficit as early as 2013.

CEBR estimated that while Irish GDP would grow by just 0.2% next year, it would rise by 7.2% in 2012, and would remain above 6% in the following years.