The latest Quarterly Economic Outlook from Bank of Ireland shows that while there is uncertainty caused by the UK vote to leave the EU, the Bank predicts growth in the Irish economy, albeit at a revised rate of 4.3% GDP in 2016 (down from the previous forecast of 5% in February) and 3% next year (down from 4%).
The steady rise in employment is expected to continue with growth of 2.4% projected this year, equating to c. 47,000 new jobs. The number of people employed is heading towards two million, with the latest data showing that growth is across a broad spectrum of sectors. At this pace of job creation, the unemployment rate could fall below 7% by end 2017.
Consumer spending rose by 4.5% last year and positive momentum has continued into 2016. Spending was up 5% year-on-year in the first quarter, while car sales in the first six months came in just under 100,000. Bank of Ireland has revised up its forecast for consumer spending to 3.8% this year, with projected growth of 3.2% next year.
Discussing the latest Quarterly Outlook, Dr Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “CSO revisions to the 2015 numbers saw GDP and GNP growth upgraded to 26.3% and 18.7% respectively. However, these extraordinary rates were influenced by purchases by aircraft leasing firms, corporate restructuring and companies relocating assets to Ireland, and so overstate the health of the economy.
“While the headline numbers cloud the picture somewhat, it is clear that the economy is creating jobs and experiencing solid underlying growth. This is expected to continue and we see GDP expanding by 4.3% this year and 3% next year. That said, the economic outlook has been impacted by the materialisation of downside risks - namely a fall in sterling and the UK’s vote to exit the European Union in June - leading us to pare back our forecasts from our February Outlook (which saw the economy growing by 5% in 2016 and 4% in 2017). The combination of a weaker pound, increased uncertainty and slower UK growth is expected to dampen Irish exports, and also weigh on confidence. At the same time, growth in our other trading partners and previous competitiveness gains should provide some support. At home, the domestic economy is set to benefit from further investment, sustained consumer spending and an improving labour market. The unemployment rate is now at a 7 year low and, with employment growth expected to continue over the forecast horizon, could fall below 7% by the end of next year.”
On the UK economy, Dr. Loretta O’Sullivan said: “We have lowered our forecasts for growth in 2016 and 2017 and now expect GDP to increase by 1.5% and 0.7% respectively (compared to 2.3% in both years in our February Outlook). Business investment had fallen in advance of the referendum and is forecast to decline further as expansion plans are delayed or cancelled. While consumer spending has been resilient to date, it is expected to soften as the labour market weakens. In addition, higher inflation resulting from the fall in sterling will dampen households’ purchasing power, though the weaker pound should support exports. Policy action is also expected to cushion the impact on the economy, as the Bank of England looks set to cut interest rates and the government may well slow the pace of, or reverse, planned fiscal consolidation in the period ahead.”