Page last updated at 10:01 GMT, Wednesday, 25 June 2008 11:01 UK

Gloomy forecast for Irish economy

By Shane Harrison
BBC Northern Ireland Dublin correspondent

Jobs are going to India over the next three years
Jobs are going to India over the next three years

The Republic of Ireland's leading forecast agency has warned that the country will experience its first recession since 1983 this year.

The Economic and Social Research Institute also says it expects emigration to return.

It has been a gloomy 24 hours for the Republic's economy. First there was the news that the insurance group, Hibernian, is to move 580 jobs over the next three years to India.

And then on Tuesday morning over breakfast, radio listeners and newspaper readers were fed more of a diet of bad news with the latest ESRI forecasts.

The institute expects the Irish economy to contract by 0.4% this year after growing by 4.5% in 2007.

It is also forecasting that unemployment will rise from under 5% last year to over 7% next year, and that this will lead to net emigration of 20,000.

The ESRI blames the impact of declining consumption, the building slump, slower exports and the international credit crisis for the worsening Irish economic situation and declining tax-take.

But economists say Ireland is much better placed now to deal with a recession than in the 1980s.

That's because the country's national debt is much lower, interest rates are also much lower, as is inflation, and unemployment is extremely unlikely to rise to over 15% the way it did 25 years ago.

Nevertheless, the government is still caught in a dilemma about how to address this downturn.

It will almost certainly urge pay restraint on public sector unions as the trade union movement, business leaders, the government and others prepare for the next round of social partnership talks.

But with inflation rising, it is unclear how unions will respond.

The Irish government will also have to decide whether to break the borrowing rules for the Euro currency to pay for its huge building infrastructure project, the National Development Plan.

After the rejection of the Lisbon Treaty in the recent referendum, it remains to be seen whether Ireland's EU partners will look kindly on such a course of action.

The ESRI argues that the government should go ahead and borrow 11bn next year anyway because it is an investment in the future. But other economists disagree.

They say the lessons of the 1980s suggest that it can be very hard to bring borrowing out of control when day-to-day political pressures are factored in.

Although nearly everybody agrees that the Republic is much better placed to face a recession than in the past, the ghost of the 1980s still haunts many in Ireland.

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