We are bouncing back

Upbeat Davy report predicts 10% GDP growth by year end as exports thrive and country enjoys jab rollout boost

CONSUMER spending and ‘buoyant’ exports will drive a ‘faster recovery than previously expected’, an upbeat economic forecast by Davy has found.

It predicts 10% GDP growth by the end of the year – and this is expected to continue into 2022 with a 5.6% increase.

Davy had previously predicted that economic growth this year would be closer to 4.8%, but it is revising up its estimates due to the performance of exports and the multinational sector, both of which are expected to expand by 15% this year.

‘We have revised up our forecast for GDP growth in 2021 to 10% versus 4.8% previously, on the back of the buoyant export and multinational sectors, which remain impervious to any Covid19-related disruption,’ the report stated. ‘Ireland’s defensive export sector – concentrated in information and communications technology, pharmaceuticals and medical technology – performed well during the global recession.

‘Smaller indigenous manufacturers did see disruption. However, a sharp bounce-back is now also under way in the indigenous economy following relaxed Covid-19 restrictions and good progress in the vaccination programme.’

Much of the rebound in domestic activity is being attributed to the fast rollout of the vaccination programme, which has recently overtaken the UK for the proportion of the population that is fully vaccinated.

Consumer spending is expected to see a ‘sharp’ rebound in the second part of this year, growing by 2.8% in 2021 and further accelerating by 8.6% in 2022.

‘Consumer spending fell by 5.9% in Q1 2021, down 11.8% on the year and 15% below pre-pandemic levels. However, it is clear that a very strong rebound is now under way as Covid-19 restrictions have been lifted,’ the report said.

‘Sales volumes in June were above pre-pandemic levels in most major categories but do not include hard-hit service sectors and spending on tourism.

‘Daily debit/credit card spending averaged €212million in Q2, up 15% from €185million in Q1, and rose above pre-pandemic levels in June.’

The report is forecasting consumer spending to increase by 6.5% in Q2 this year and by 5.5% in Q3. The level of consumer spending at the end of this year will be ‘just below’ pre-pandemic levels.

‘Although retail sales and card spending have recovered, tourism will likely remain weak,’ it said.

‘No tax rises are planned in October’s Budget, which will support spending into 2022.’

The report pointed to the Government’s Summer Economic Statement, which indicated that there will be room in October’s Budget for €1billion in discretionary spending increases and €500million of tax cuts.

The Davy report also suggests the easing of Covid-19 restrictions has been ‘more successful in creating jobs than we first thought’. ‘Pandemic Unemployment Payment claimants had fallen to 163,000 by early August, down from 480,000 in February and 310,000 at end-May,’ it said, although it added that ‘we estimate the Covid-19-adjusted unemployment rate is still 15%’.

The report is forecasting that the unemployment rate will fall to 8% by the end of next year.

‘Our forecast implies employment will still be 4% below pre-pandemic levels by end-2022,’ it added.

However, despite the rosy outlook in the economy, house prices are still set to increase throughout the rest of the year and into next.

Davy is expecting house price inflation to be at 8% for the all of 2021 and 3.5% for 2022. Mortgage lending is expected to total €10billion by the end of the year and increase to €11.2billion in 2022.