Ireland

Ireland Cuts Two-Year Growth Forecast (Macroeconomics Assignment)

by

Babajide Fawole MBA Class of 2013

November 2012

Dublin, on the 14th of November 2012, cut its growth forecasts for 2013 and 2014. As reported by Jamie Smyth’s Financial Times article “Ireland cuts two-year growth forecast”, slower export expansion due to the economic difficulties Ireland’s main trading partners are facing, is blamed as the main reason for the revised forecasts. Although the growth forecasts for 2012 were revised upwards, from 0.7 to 0.9%, the article states that growth in GDP in 2013 had now been revised down, from 1.5% to 2.2% while growth in GDP in 2014 was revised to 2.5% from 3%. The article also mentions that the Irish government will proceed with its austerity plans and implement an additional €3.5 billion in tax raises and spending cuts to meet deficit targets in its bailout program. Trading partners protect, Irish exports shrink While the article singles out economic difficulties in trade-partner countries, the article doesn’t mention the effect of the protectionist measures a number of Ireland’s trading partners and European countries as well, are embarking on. Ireland is one of the top 20 exporters in the world and its exports and major trade partners include the United States and several countries in the European Union. Its agricultural exports account for 46% of GDP and constitute 80% of the country’s total exports. Given Ireland’s high reliance on export for growth in aggregate demand, countries that are looking to increase tariffs on imports of certain goods to promote recovery in their home countries will certainly have further negative implications for Ireland’s aggregate demand. Net exports will fall as fewer goods are exported. The cost of trade will go up due to increased tariffs thereby reducing incentives to export. Businesses will also earn less return or even probably incur losses from not being able to export and thus the level of investments...