November 27, 2012 / 10:01 AM / in 6 years

Ireland should get more time on deficit if growth slows-OECD

PARIS, Nov 27 (Reuters) - Ireland should be allowed miss deficit targets set as part of an EU/IMF bailout if its economy grows slower than expected, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

Ireland, which became the second euro zone country to be bailed out two years ago this week, has avoided joining much of the bloc in recession thanks to robust exports. It expects to post its second year of economic growth in a row this year.

The government reiterated earlier this month that despite trimming its forecast for the level of growth, it still expects to cut its budget deficit to 3 percent of gross domestic product (GDP) in 2015 from 8.3 percent of GDP this year.

However the OECD said it should be cut some slack if growth disappoints.

“Reflecting a slowdown of the world economy, especially in Europe, ongoing fiscal consolidation and tight credit conditions, the recovery is expected to proceed at an only moderate pace,” the OECD said in its latest economic outlook.

“If growth turns out to be weaker than expected, however, this should be allowed to show up in slower improvements in the headline fiscal balance.”

The Paris-based think tank sees Ireland’s economy growing by 0.6 percent this year, broadly unchanged from its last forecast and better than the downturn seen in the euro zone. It cut its estimate for growth in 2013 to 1.3 percent from 2.1 percent.

That is a touch more optimistic than the 0.9 percent and 1.5 percent the government has pencilled in for GDP growth this year and next.

Unlike the government, the OECD sees sharp falls in domestic demand bottoming out in 2014 and not 2013, with the weak growth keeping unemployment near a crisis-level high of 14.6 percent at the end of 2014, just over a year before the next parliamentary election.

Ireland, which made a limited return to debt markets in recent months, is lobbying Europe to ease the burden placed on it by rescuing its banks and the OECD said a retroactive recapitalisation of Ireland’s viable lenders by European rescue funds would contribute to a more positive outlook.

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