Bloomberg News

Irish May Need More Cuts to Reach Fiscal Target, OECD Says

April 13, 2012

Ireland may need to make more budget savings this year to reach its deficit target as growth prospects deteriorate, said David Haugh, a senior economist at the Organization for Economic Cooperation and Development.

“It is possible that the government will have to do a little more in terms of fiscal consolidation this year” to reach its deficit goal of 8.6 percent of gross domestic product, Haugh, head of the Irish Desk at the Paris-based OECD, said in a telephone interview yesterday. “The prospects for the Irish economy have weakened.”

The OECD is reviewing its 1 percent growth forecast for the Irish economy for this year and “risks are definitely to the downside,” Haugh said. The Irish central bank on April 5 forecast growth of 0.5 percent for the economy and said the government’s budget targets remain within reach even as the economy slipped into a recession in the last quarter of 2011.

Ireland will find it “tough” to re-enter international bond markets next year and yields need to fall to between 5 percent and 6 percent for funding costs to be sustainable, Haugh said. The country’s current 67.5 billion-euro ($88.7 billion) international rescue program finishes at the end of 2013.

Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.82 percent today, down from 9.1 percent at the start of December. Finance Minister Michael Noonan said last month the government will lower its 1.3 percent growth forecast.

Missing Targets

Michael Saunders, head of European economics at Citigroup Inc. in London, said he expects the Irish economy to contract this year and that missed fiscal targets and weaker growth may require the country to seek a second bailout.

“I think Ireland will miss its fiscal targets this year, next year, the year after that and probably the year after that as well,” Saunders said by phone today. “More cuts would be counterproductive as it would just deepen the economic hole.”

Ireland’s economy probably shrank for a third consecutive quarter in the first three months of this year, according to Saunders, who cited recent declines in retail sales, industrial production and property prices.

“The signs aren’t very healthy,” he said.

To contact the reporter on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net


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