Recovery ‘hinges on credit for SMEs and construction sector

Dealing with non-performing loans and providing credit to SMEs and the construction sector is crucial to ensuring Ireland’s economic recovery can be sustained, the European Commission has warned. It also fears that a failure to kick-start credit flows could hamper the supply of new homes.

Releasing its latest euro-area economic forecast, the Commission has predicted that Ireland’s gross domestic product will rise by 1.7pc this year. That’s lower than the 1.8pc growth rate it predicted in February.

The projected rate is also significantly lower than the 2.1pc GDP growth rate for 2014 that’s been forecast by the Government. The IMF has also pencilled in a 1.7pc GDP increase for Ireland this year.

“The robust performance of the labour market remains the most visible sign of the Irish recovery, while the ongoing deleveraging in the private and the public sector continues to weigh on the speed of the recovery,” said the Commission in its report.

The EC has also warned that the successful resolution of non-performing loans in the Irish market is a “precondition for the restoration of credit channels and for sustaining the economic recovery beyond the short-term”.

“Impaired access to finance and the effects of legacy debts continue to pose risks for SMEs seeking to replenish capital stocks and seize new business opportunities,” it cautioned. “Impaired credit channels are also a risk to the construction sector, which, if not addressed, may lead to bottlenecks in the supply of new residential and commercial property.”

Finance Minister Michael Noonan, who was in Brussels yesterday for a Eurogroup meeting of finance ministers, insisted that significant credit flows were now becoming available for borrowers here.

He also welcomed the European Commission’s forecast of a 3pc GDP growth rate for Ireland next year. That’s higher than the 2.9pc growth rate for 2015 it had predicted in its last economic update. It compares to the Government’s own 2.7pc projection for 2015.


The European Commission also warned that Ireland’s dependence on energy imports also has the potential to deal a blow to recovery. As tensions rise in Ukraine, energy costs could rise.

“There’s always the fear of external shocks,” said Mr Noonan. “Political instability on the periphery, whether it’s north Africa, the Middle East or the borderlands with Russia, is always a concern, but we don’t control them.”

The European Commission noted that Ireland’s debt peaked at the end of 2013 at 124pc of GDP. The country’s falling unemployment rate – now at 11.8pc – brought the figure on par with the euro-area average for the first time since October 2008, said the Commission.

The Commission also said that low inflation across the eurozone would threaten economic expansion for at least two more years.

It cut its GDP growth forecast for the region to 1.7pc for next year, down from 1.8pc.

Irish Independent