Xperience Group (IBM Client)

BizPlus
ABOUT BUSINESS PLUS
Solicitors Who's Who

Accountants Who's Who

Meeting Rooms in Dublin

Public Relations Who's Who

News

Home » News

Davy: Economy Is Going Gangbusters


The "exceptional strength" of short-term economic indicators in H1 2014 such as the PMIs, tax revenue growth, retail sales and the falling unemployment rate has taken finance house Davy by surprise.


These indicators suggest Ireland is probably the fastest growing economy in the Eurozone, said Davy economist Conall Mac Coille.

For example, among 50 countries only Ireland has seen a 1.5 percentage point fall in its unemployment rate over the past 12 months.

“Hence, we have revised up our forecast for GDP growth in 2014 to 3.5%, from 2.5% previously. Our first forecasts for 2015 and 2016 are for 3.0% and 2.8% GDP growth respectively,” said Mac Coille.

He added: “It now appears both the domestic economy and export sector are performing better than expected. Goods export volumes have bounced back in 2014 as the negative impact of the pharmaceutical patent cliff has waned.

“We expect export growth to accelerate to 3.5% in 2014 and 4.0% in 2015. Ireland has also seen exceptional growth in retail sales volumes, +6.5% in H1 2014 compared with the previous year.

“So although consumer spending has been weak so far, we expect a 1.5% expansion in 2014 and 1.9% in 2015. Both employment growth and a modest rise in nominal wages are helping consumption.

Mac Coille (pictured) noted that there was a contraction in investment spending in 2013, which he attributed to “volatile components” such as R&D and the aircraft leasing sector.

“We are encouraged by the continued strong flow of FDI projects announced by the IDA and with construction activity beginning to bounce-back from an exceptionally low base.

“We expect the government will need to implement a small €500m adjustment in Budget 2015 to ensure the deficit falls to 2.9% of nominal GDP.

“This means government debt will fall to 112% of GDP as IBRC is liquidated and its liabilities no longer contribute to the ESA2010 measure of general government debt.

According to Mac Coille, one difficulty in forecasting Irish economic growth is assessing the extent of spare capacity. The IMF and EU Commission estimate the output gap is currently close to 1% of GDP and will close to zero in 2015, suggesting there is little room for the economy to bounce-back.

“This is a bleak view, especially given GDP still 5% below peak levels and the unemployment rate at 11.5%,” said Mac Coille.

“Construction output is still well down from peak levels with only 8,000 housing completions in 2013. Our forecasts are based on housing completions rising back to almost 15,000 in 2016, a substantial increase but still well below the 25,000 per annum necessary to satiate natural demographic demand.

“Should government policy initiatives be successful in relieving constraints on construction activity – helping to contain house price inflation by encouraging housing supply - our forecasts for GDP and employment growth may be too pessimistic,” he added.

Davy Forecasts

+ 3.5% GDP growth in 2014 and 3.0% in 2015, and 2.8% in 2016. This is an upward revision from previous forecast for GDP to grow by 2.5%.

+ Irish GDP will rise back to pre-recession peak levels by 2016.

+ GNP to grow by 2.8% in 2014 and 2.3% in 2015.

+ Consumer spending to join in the recovery, 1.5% growth in 2014 and 1.9% in 2015.

+ Export growth 3.5% in 2014 and 4% in 2015 expected.

+ Investment spending will recover in 2015 as construction activity recovers from a low base and strong flow of FDI announcements continues to contribute to growth.

+ Employment to grow by 2.8% in 2014 and 2.3% in 2015.

+ Unemployment rate to fall to 9.6% in 2015 and 8.6% in 2016.

+ Budget deficit of 3.9% of GDP in 2014, well inside the 4.8% of GDP the government had targeted.

+ Deficit to fall to 2.9% in 2015 based on €500m adjustment in Budget 2015.

+ Government debt to fall from 123.1% of GDP in 2013 to 112% in 2014, as IBRC liquidation is completed. (August 2014)

Download Davy's forecast for Ireland's economy here.

« Back


Business Services

Choose from Business Services below:

 



Level Double-A conformance icon, W3C-WAI Web Content Accessibility Guidelines 1.0 Valid XHTML 1.0! Valid CSS!