Positive economic data suggest another year of solid growth according to Bank of Ireland’s Chief Economist

GDP and GNP forecasts revised upwards by c. 1% point
Weak euro supporting exports
Pace of consumer spending accelerating

Bank of Ireland’s latest Quarterly Economic Outlook for the Irish economy has revised up its GDP and GNP forecasts by c. 1 percentage point for this year and next. GDP is now projected to increase by 5.3% in 2015 and 4.8% in 2016, with GNP rising by 5.0% and 4.6% respectively. Strong national accounts data for the first quarter of 2015 and positive signals from high frequency indicators point to continuing momentum and solid growth again this year.

Commenting Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “The economic data flow in recent months has been encouraging as we continue to see a broadening out of the recovery, with domestic activity – especially consumer spending – firming and contributing to growth along with net exports. Tailwinds including favourable exchange rate movements and external demand, as well as further employment gains and high confidence levels, will continue to provide support; albeit ongoing deleveraging remains a headwind. With the economy growing solidly, a decline in the unemployment rate to around 8% is expected by the end of 2016. Inflation on the other hand should stay fairly subdued.

“Exports look set to register strong growth again this year. The first quarter saw exports rise by 14.3% year-on-year, underpinned by a robust goods performance and healthy services growth. The depreciation of the euro against sterling and the dollar is providing support to firms exporting to the UK and US, while the recovery in the euro area – Ireland’s other main trading partner – is gaining ground.

“Investment rose by over 14% in 2014 and we expect to see double digit growth this year also. Business investment is benefitting from the recovery in the domestic economy and ongoing FDI inflows. The rebound in construction is continuing as well, with signs of increasing activity across the residential, commercial and civil sectors. House completions, for example, were up 16.4% year-on-year in the first half. Completions are still well below estimated required levels though, and with construction activity generally coming off a low base, there is room for further gains as the economy improves. Total investment is projected to rise by 10% in 2015 and by 7.5% in 2016.

“Consumer spending last year was better than initially estimated by the CSO and has continued to improve this year. The number of new cars sold in the first six months was some 26% higher than in the same period last year, leaving sales on track to come in over 115,000 for the year as a whole. A range of other retail categories have also recorded annual increases in recent months. Looking ahead, rising employment and earnings, along with subdued inflation, auger well for household incomes and spending prospects. The Government’s intention to introduce a budgetary package of €1.2 to €1.5 billion in Budget 2016 should provide further support, though ongoing deleveraging on the part of households will remain a headwind. Consumer spending is forecast to increase by 3.2% both this year and next, an upward revision that reflects the good data we are seeing.

“The recovery in the residential property market is continuing. Transactions in the first half of the year were up over 30% on the same period last year with the volume of mortgages for house purchase increasing by 64% year-on-year in quarter one. Prices are also rising, though the annual rate of growth has started to ease back a bit. With supply only gradually increasing to meet demand, house price gains are expected again this year, albeit at a more moderate pace than last year”, concluded Loretta O’Sullivan.

ENDS

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