Big growth in economy and rise in consumer spend forecast
DAVY Stockbrokers has radically hiked its growth expectations for the Irish economy this year, and is predicting a sharp spike in consumer spending as the debt overhang from the crash starts to recede.
The figures contrast with recent slowdowns in the UK, Germany and France.
Here, the country’s biggest brokerage has revised up projections for Irish gross domestic product (GDP) growth to 5.7pc this year and 4.5pc in 2019.
The 2018 forecast is well up on the previous estimate of 3.8pc. It is also well ahead of the Central Bank’s growth estimate for this year, although just marginally higher than the Department of Finance view.
Having been in sustained contraction since 2008, Davy thinks lending into the Irish economy will grow this year.
“We... expect 2018 to see the first rise in bank lending to corporates, with mortgage lending also set to stabilise,” the research from Davy chief economist Conall Mac Coille said.
There are signs more homes are reaching the market, Davy found. ESB home connections were up by 150pc through January and February to 3,158 and building commencements up 45pc to 3,147. Preliminary Central Bank data shows new mortgage lending in the first two months of 2018 up 38pc on 2017.
In the mortgage market, the number of new and second-hand homes sold is rising towards 60,000 this year and is expected to stabilise.
A key reason for the upward revision was the continuing strong export performance, Mr Mac Coille said.
Exports grew by 6pc last year, despite the aftershocks of the 2016 Brexit vote, including on currency markets.
On-going foreign direct investment and imports of intellectual property – by large multinationals – mean the export sector should make a strong contribution to GDP growth in 2018 and 2019, Davy said.
The strength of the labour market will see the unemployment rate continue to fall towards 4pc heading into the next decade, it said.
Following large outflows of mostly younger workers in the wake of the crash, net migration turned positive last year as more people arrived to take up jobs than left the country.
Consumer spending, a laggard through the recovery, grew by 1.9pc in real terms in 2017. However, Mr Mac Coille said he now expects consumer spending to bounce back, rising by 3.2pc this year and 3pc in 2019 as a combination of expected wage growth and tax cuts lifts household finances.
Despite the current buoyancy in the economy, Brexit remains a key risk.
Employers’ group Ibec will today publish the results of a survey that shows most companies are now actively planning for the impact of a UK exit from the European Union.
However, the survey shows only one-in-five companies (21pc) has contingency plans in place, and half (53pc) say they will have plans in place over the coming months.
The prospect of a potentially messy “no-deal Brexit” has come into focus in recent weeks as British negotiations have become ensnared in political crises at Westminster.
The issues of most acute concern to companies here are: customs and certification barriers (the top concern for 20pc of companies); future regulatory divergence (13pc); and exchange rate volatility (13pc), the survey found.
Ibec CEO Danny McCoy said: “Business is actively working to support an outcome that delivers close EU-UK alignment into the future, but major obstacles exist.
“The type of EU-UK free trade agreement that currently seems likely would amount to a significant deterioration of the current economic relationship and would come with a heavy economic cost.”