Economy to weather the storm 'with 3pc growth'
Despite gloomy outlook from ESRI, forecast predicts GDP will push ahead
Thursday March 27 2008
The Irish economy will weather the current wave of global economic uncertainty, with GDP growth here likely to hit 3pc this year, claimed Bank of Ireland's traditionally upbeat group chief economist Dan McLaughlin yesterday.
His revised growth forecast represents a 25pc reduction in his previous target of 4pc, however.
His prediction is also at odds with the warning sounded earlier this month by the Economic and Social Research Institute (ESRI) which expects Irish growth to slump to a 20-year low of 1.6pc this year.
Dr McLaughlin said the economy is more resilient than it might be given credit for.
While consumers have also been holding out for interest rate cuts by the European Central Bank, Dr McLaughlin said that they will have to wait until later in the year for any good news.
He's predicting that two ECB interest rate cuts will reduce borrowing costs by a total of 0.5pc, but added that the benefits may be short-lived, with international money markets already pencilling in an expected rise in rates again next year.
However, yesterday ECB president Jean-Claude Trichet reined in expectations for severe rate cuts. He said that inflation still remains the single biggest concern for European economies.
"The firm anchoring of inflation expectations in the medium to long term is of the highest priority," he said.
Data released yesterday also showed that German business confidence rose unexpectedly in March, signaling that Europe may be avoiding the worst side-effects of US recessionary fears, its slumping consumer confidence and credit crisis.
Delivering his economic outlook, Dr McLaughlin also said he did not agree with the ESRI's assessment that there would be no employment growth in the Irish economy this year.
He maintained that about 40,000 net jobs, primarily in the services sector, are likely to be created in 2008 and added that the ESRI's expectation of zero job growth would require some very significant jobs losses to be announced during the year.
He said unemployment will probably reach 5.5pc this year, compared to about 4.6pc currently.
The prime reason for Ireland's cyclical slowdown is falling residential construction levels, said Dr McLaughlin, who's predicting that 50,000 homes will be completed this year, down from his previous forecast of 58,000.
He also said he expects the number to rise again in 2009, to 55,000.
A slowing housing market also continues to impact on Government stamp duty receipts, but Dr McLaughlin said that Bank of Ireland expects a €1bn shortfall in tax receipts relative to Brian Cowen's budget projections, giving rise to a €2.8bn general government deficit for the year.
- John Mulligan
