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Guarded optimism on Irish economy despite growth cut

By Padraic Halpin

DUBLIN (Reuters) - Ireland's economy won't grow as fast next year as previously anticipated, although it will beat the 1.4 percent growth posted in 2011, finance minister Michael Noonan said on Thursday.

Noonan's guarded optimism appeared to be backed up by a survey released on Thursday that showed Ireland's manufacturing sector grew for the eighth month in a row in October and at the fastest rate in three months as orders from abroad rebounded.

Ireland, bailed out by Europe and the International Monetary Fund (IMF) two years ago this month, has avoided the recession gripping much of the euro zone this year thanks to robust exports, a factor that helped it resume borrowing in long-term debt markets in July.

However the problems of its trading partners, together with high unemployment and relentless austerity at home, are slowing its economy and Noonan said last week that the government would have to cut its estimate for a 2.2 percent expansion next year.

"We have no reason to move away from the prediction that it will be about three quarters of one percent growth this year," Noonan said in a speech ahead of an update to growth projections due this month.

"The growth will be stronger next year than it was this year, it will be stronger than it was last year as well ... so we're reasonably well positioned."

The NCB Purchasing Managers' Index (PMI) for Irish manufacturing climbed to 52.1 in October from 51.8 in September, above the 50-mark separating growth from contraction and significantly stronger than the 45.3 euro zone average according to flash figures.

Adding to signs of recovery, bosses of the country's two biggest banks, Allied Irish Banks and Bank of Ireland , have told parliament that the rate of growth in mortgage arrears has continued to slow.

However the unemployment rate stayed at a stubbornly high 14.8 percent in October and despite claimant numbers falling by 1,000, the proportion of those who have been claiming for more than one year rose to 45 percent from 41 percent.

Investment this year from foreign companies like McDonalds Corp , which announced on Thursday it would add 700 jobs in Ireland over the next three years, has only partially offset job losses at firms that took on heavy debt during the "Celtic Tiger" boom years.

Telecoms operator eircom said on Wednesday that it planned to axe 2,000 workers over the next 18 months.

"NEXT YEAR NOT SO BAD"

Economists said the government's relatively small cut to growth forecasts would not force Ireland to rush into appeasing its bailout lenders with yet more austerity given the recent rise in its tax take.

"When you take account of the significant resilience of exports, significant foreign direct investment announcements, helpful exchange rates and broad consensus that next year won't be quite so bad for domestic demand, it suggests that growth will be somewhere in the 1.5 percent region," said KBC Ireland chief economist Austin Hughes.

Economists polled by Reuters last month agree the economy will grow by 1.5 percent next year, although the IMF last week cut its forecast for growth next year to 1.1 percent.

Noonan repeated on Thursday that the government would trim its budget deficit to around 8.3 percent of gross domestic product (GDP) this year, beating its bailout target of 8.6 percent and giving it a headstart on the end-2013 target of 7.5 percent.

Reducing the deficit to 4.8 percent a year after that depends heavily on European leaders fulfilling a promise to ease the terms of Ireland's costly bank rescue. German Chancellor Angela Merkel offered Ireland's prime minister no clear signal on the issue when he visited Berlin on Thursday.

(Reporting by Padraic Halpin; Editing by Ruth Pitchford)

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