By Andrew Bushe
DUBLIN — The Irish economy is set to face one of the biggest setbacks of any country in the world as a result of the U.S. terror onslaught, according to a series of official forecasts that all carry the same gloomy message but vary about how bad it will be.
Some predict Celtic Tiger growth will collapse to below 2 percent next year, that property prices could drop by as much as 15 percent, that unemployment could double, that and confidence will melt away and hit consumer demand.
The economic gurus in the Central Bank and the Economic and Social Research Institute think-tank are still uncertain about how bleak the immediate slump will be.
But they are both bullish about a medium- to long-term recovery and expect the shock to the system to last about two years.
All the bad news came as figures for the first quarter showed that, despite the economic slowdown and IT industry problems, the economy continued to grow by a sizzling by 13.2 percent in GDP terms and 11.6 percent in GNP terms in the three months.
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The GDP growth rate is the third-highest quarterly surge since the economic boom began in the mid-1990s. The highest quarterly growth was during the last three months of 1999, when it reached 14.3 percent.
Taoiseach Bertie Ahern said it is now imperative that the government manage the economy through this difficult period. “It will obviously be a period in which we will have less revenues,” he said. “It is a challenge we have to face.”
Finance Minister Charlie McCreevy, meanwhile, talked down any hopes of a giveaway, pre-election budget. “I think we must temper our expectations and be realistic about the current economic situation,” he said.
The most dismal future predictions came from the ESRI. It expects GNP growth this year to be 6 percent, dropping to less than 2 percent next year.
However, the Institute expects growth to average 4.5 percent a year over the current decade.
“While in the short term the Irish economy faces a very uncertain outlook, the economy remains fundamentally healthy,” ESRI said. “Any underperformance in the next two years is likely to be matched by a subsequent spurt of activity, returning the economy to its trend growth path.”
If the ESRI’s slowdown scenario becomes a reality, it would mean a 15 percent fall in house prices before they recover again to current levels by 2005 and a doubling of unemployment to 7.6 percent by 2003 before returning to full employment levels by 2007.
In a statement accompanying its quarterly bulletin, the Central Bank said it expected a fall in GNP growth to 3.5 percent next year.
It expects the attacks’ fallout to disproportionately affect tourism and travel from the U.S.
It warned it is possible to envision “a much more complex fallout” in which the impact on world trade would be greater and be accompanied by a sharp appreciation of the euro and an increase in oil prices.
“This would be likely to produce a larger negative impact on the economy even allowing for the likelihood that monetary authorities around the world would further ease monetary policies.”