IRELAND
Forecast

Outlook for 2008-09

• We expect the multi-party coalition, formed in June 2007, to remain in office over the outlook period. There is a limited risk of the arrangement collapsing, with the Green Party the most likely participant to withdraw.
• Apart from environment-related policies, we do not expect the new administration to hasten the pace of reform, largely because of differences on policy and the power of vested interests to block change.
• Despite an estimated increase in the euro area inflation rate to 2.6% in October, the European Central Bank (ECB) is not expected to increase interest rates above the current rate of 4%.
• The fiscal position is deteriorating, and this will place constraints on government expenditure. A deficit is expected by 2009.
• GDP growth is expected to slow sharply in 2008, mainly because of the ongoing slowdown in the previously overheated property sector. However, there is a real risk of recession.
• Unemployment is expected to rise over the outlook period, as the construction sector shrinks, but inflation and the current-account deficit will both fall.

Monthly review

• Against the backdrop of a gloomier economic outlook, centred on the overheated property market, a series of events and unforced errors has seen the government endure its most difficult period since it took office in June.
• In mid-October EU member states finalised a treaty containing changes to the bloc's ground rules and institutional arrangements. Ireland is set to be the only member to put the deal to a referendum, probably in mid-2008.
• The minister for finance, Brian Cowen, published a Pre-Budget Outlook (PBO) for the first time on October 18th. Gross current spending is targeted to increase by 4.8%, to€51bn in 2008, considerably more moderately than recently.
• The rate of decline in housing completion is accelerating, as the sector experiences its sharpest downturn in two decades. By the third quarter of 2007 completions were 23% down on the same period in 2006.
• On November 1st, following three years of planning and four months of trials, the electricity markets in the Republic and in Northern Ireland were merged to form a single crossborder wholesale market.
• According to the EU-wide Harmonised Index of Consumer Prices (HICP) Ireland's rate of inflation, at 2.9%, remained well above the EU average (2.2%) in September.