Strengthening domestic demand to boost growth according to Bank of Ireland

Economy expands again in Q3
Consumer spending and investment recovering
Exports to benefit from pick up in global growth

Ireland exited the EU/IMF programme as planned in mid-December without availing of a precautionary credit line. The market took the decision in its stride with the State’s borrowing costs falling further at the start of 2014 following the successful issue of a new 10-year government bond. Investors have clearly been impressed by the progress made in Ireland as the public finances have been brought under control and the economy has returned to growth, according to Bank of Ireland’s Quarterly Outlook which was published today, Friday 7 February 2014.

According to Michael Crowley, Senior Economist, Bank of Ireland and author of the report ‘The economic recovery continued in the third quarter of last year with GDP rising by 1.5% after an increase of 1% in the second quarter. Both consumer spending and investment increased for a second consecutive quarter, thus contributing to the first year-on-year increase in domestic demand since the beginning of 2011. Exports eased back again after rebounding in Q2, and for the year as a whole are likely to have been flat on 2012.

‘Exports should strengthen in 2014 as activity in Ireland’s main trading partners improves. The IMF expects the global economy to expand by 3.7% this year, up from 3% in 2013, with the advanced economies, notably the US, accounting for most of the forecast acceleration in growth. In line with this, world trade is expected to increase by almost 5% this year, the fastest pace of growth since 2011.

‘The labour market evolved favourably in 2013 with employment increasing strongly and the unemployment rate falling sharply. We expect employment to rise by around 2% in 2014, which will contribute to an increase in aggregate disposable income in the economy and hence support consumer spending.

‘Investment (excluding the volatile aircraft component) staged an impressive recovery last year and looks to have risen by more than 10% in 2013, the first increase since 2007. Investment should rise further this year in response to increased domestic and external demand.

“Overall, we expect GDP growth to accelerate to almost 2.5% in 2014 from around 0.5% last year, while GNP is forecast to increase by close to 2%. Domestic demand is projected to grow by more than 1.5%, following an increase of less than 0.5% in 2013”, concluded Michael Crowley.