Instant view: Ireland targets 6 billion euros adjustment in 2011

DUBLIN (BestGrowthStock) – Ireland’s government is targeting fiscal adjustments totaling 6 billion euros next year to get its budget deficit into a range of 9.25-9.5 percent of gross domestic product, the finance ministry said on Thursday.

Following are analysts’ comments on the plan.

OLIVER HOGAN, CEBR

“The improvement projected for next year is still based on a strong export-led recovery. But with the recovery in the U.S. stuttering as well as in Europe we think there’s less chance of such an export-led recovery.

“The projections on domestic demand seem a little bit aggressive as well. We would be a bit dubious on the plausibility of achieving the growth projections.

“I think committing to front-load the cuts sends a good signal to the markets that Ireland is serious about fiscal consolidation.

“I think they’re on the right track in terms of what has to be done but they may find it has more of a detrimental effect (on growth) than they’re expecting.”

ALAN MCQUAID, CHIEF ECONOMIST, BLOXHAM STOCKBROKERS

“The 6 billion figure was well flagged so I don’t think there’s any great shock there. There’s no great detail, you’re none the wiser as to how they are going to get the money.

“Growth for next year at 1.75 percent is lower than the consensus so you have assume the budgetary measures will dampen activity so most people will be revising down their forecasts.

“In terms of will it appease the market, obviously the markets will want the greater detail so you will have to wait until the four-year plan and the budget. I don’t think bond yields will suddenly be flying low because of this thing.

“There’s a timing issue too. These things are far too important to be hiding them at 1630 in the evening, it gives the impression that it’s exactly that, they’re trying to hide something.

“I don’t understand why they release these things at this time of the night, they’d want to cop onto themselves. This is ridiculous. Trichet was asked a question on it today and he had no idea what was in it. Germany’s gone home already, the UK’s closed. Who are going to digest this thing to get any sort of rally? Tomorrow morning it will be yesterday’s rules.”

GOVERNMENT BOND TRADER IN LONDON

“The Irish budget plans and forecasts for the next three years look hugely unrealistic. That seems to have been the trigger (for Bunds to rise). They’ve got no chance.”

EOIN FAHY, CHIEF ECONOMIST, KLEINWORT BENSON INVESTORS

“The thing I was concerned about was that you would have unrealistic growth forecasts and you haven’t had that.

“I would describe this as one of the four or five hurdles they have to get through between now and December 7 and it’s crossed but that doesn’t mean we have reached the ‘Promised Land’. It means that we have taken the first step toward it and there are a lot of barriers ahead still so I am not surprised that the market has not reacted strongly to this.

“If, on the other hand, it had not been as big as 6 billion euros if it had been based on unrealistic (growth) forecasts then I would have certainly expected the market to sell-off, quite substantially.”

BRIAN DEVINE, CHIEF ECONOMIST, NCB STOCKBROKERS

“I don’t see anything particularly that I didn’t know this morning, there’s nothing new really. It shows a clear commitment to fiscal credibility which has always been there.

“People in the market knew that it was likely to be a 6 billion euro budget with 15 billion over the next number of years and the growth rates were likely to be between 2 and 3 percent so I wouldn’t go buying on the basis of this.

“Markets are probably going to judge that the growth rates between 2012 and 2014 are slightly optimistic.”

Instant view: Ireland targets 6 billion euros adjustment in 2011