The two most significant announcements on economic matters since the last Commentary were the release of the Quarterly National Accounts for Q2 2010 on 23 September 2010 and the government’s statement on banking on 30 September. In the case of the former, the news was, at best, disappointing while in the case of the latter, it was horrendous. Both have impacted upon our view of the timing of potential recovery in the economy and on appropriate policy.
We now expect that GNP will contract by 1½ per cent this year, down from - ½ per cent in our Summer Commentary. For GDP, we now expect there to be a decline of ¼ per cent this year. This represents a change on our summer forecast when we expected GDP to grow by ¼ per cent. For 2011, we expect GNP to grow by 2 per cent and for GDP to grow by 2¼ per cent. Again, these are marginally down relative to our last Commentary.
We now expect that employment will average 1.86 million this year, down 68,000 from 2009, a fall of 3½ per cent. We expect the rate of unemployment to average 13¼ per cent. For 2011, we expect the number employed to average 1.85 million and the rate of unemployment to average 13½ per cent.
In the year ending April 2010, the Central Statistics Office (CSO) recorded net outward migration to have been 34,500. This was well below our forecast of 70,000. However, we discuss how this figure of 34,500 seems to be a conservative estimate of the rate of outflow when compared with estimates of migration contained in another CSO publication, namely, the Quarterly National Household Survey. We expect the net outflow in the year ending April 2011 to be 60,000. This is an increase of 10,000 on our earlier forecast.
The General Government Deficit is expected to be 31 per cent of GDP this year, a truly dramatic figure. Of course, almost two-thirds of this is a one-off extraordinary item related to the banking bailout. For 2011, we expect the deficit to be 10 per cent of GDP, based on a budgetary package of €4 billion in savings.
On inflation, we expect HICP inflation to average -1½ per cent this year and + ½ per cent in 2011. For the CPI, the corresponding forecasts are -¾ per cent in 2010 and + 1¾ per cent in 2011. We expect wage growth to be negative in both 2010 and in 2011, at rates of -3 per cent and -1 per cent respectively.