Wednesday 18 October 2017

Economy will grow faster than predicted, says Davy

The Central Bank in Dublin
The Central Bank in Dublin
John Mulligan

John Mulligan

Ireland's economy will grow at a faster rate this year than previously anticipated by the country's biggest stockbroker, boosted by rising domestic demand and increased investment spending.

In a new forecast, Davy Stockbrokers is forecasting that the economy will expand 1.3pc this year. That's much faster than the 0.9pc it said last October.

The report, prepared by Davy chief economist Conall Mac Coille, is also predicting that the economy will grow by 2.1pc in 2014 – more than four times the rate it expects to have been recorded last year.

But while Davy is raising its forecasts, the rate of growth it now expects to see this year is in line with what the Central Bank predicted in January for 2013.

In its quarterly economic outlook issued that month, the Central Bank actually revised down its forecast economic growth rate for 2013 to 1.3pc from 1.7pc.

The Economic and Social Research Institute (ESRI) also predicted in January that Ireland's gross domestic product (GDP) would rise 1.3pc this year. It forecast that GDP would grow by 2.3pc in 2014.

Unemployment

Davy Stockbrokers also predicts that unemployment will decline from the 14.7pc rate of last year to 13.3pc in 2014.

"The big picture remains that in the context of a euro-area recession, substantial fiscal adjustments, a deleveraging banking system and household and SME debts, the outlook remains weak," said Davy.

"That said, recent developments provide welcome evidence that the domestic economy is stabilising."

However, Davy warned that exports – which have been a strong performer for the economy – are in decline.

"Goods exports declined an enormous 7.5pc in the final quarter of the year, driven by a 12.6pc fall in pharmaceutical exports," Davy noted.

"There was also a sharp 3.8pc contraction in industrial production in Q4, again led by a 6.2pc fall in pharmaceutical sector output."

It said the fall in industrial production is "sufficiently large" to reduce Irish GDP by more than 1pc for the final quarter.

"The broad trend is that Irish exports have slowed sharply due to the euro-area recession," added Davy.

"Our measure of Irish export demand (world imports weighted according to Irish export shares) has slowed from 3.6pc growth in 2011 to just 1pc in 2012."

Davy has also cautioned that a "more severe slowdown" in exports can't be ruled out. It said the ultimate impact of the so-called patent cliff on the pharmaceutical sector here remains uncertain.

Drug companies such Pfizer have seen treatments such as its cholesterol-buster Lipitor come off patent, sinking the volumes of the drug sold. Pharmaceutical exports fell 12.6pc in the final quarter of 2012.

It said there are "clear downside risks to exports" and that export growth could turn to contraction in the first quarter of 2013 depending on impacts on the services and pharmaceutical sectors.

Irish Independent

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