Business Irish

Wednesday 24 May 2017

Growth forecast down on weak consumer demand

ECONOMY

Laura Noonan

Laura Noonan

WEAKER exports and depressed consumer demand have prompted stockbrokers Davy to become the latest experts to slash its forecasts for Ireland's economic growth.

A new report to be issued today will show that Davy is now expecting Ireland's gross domestic product, or GDP, to grow by just 1.1pc this year and 1.7pc in 2012.

The figures are down from Davy March hopes of 1.6pc GDP growth this year, and 2.4pc growth in 2012, but are still significantly above other estimates.

The IMF recently downgraded its 2011 GDP growth figures from 0.6pc to 0.4pc, while 2012's outlook was cut from 1.9pc growth to 1.5pc.

The ECB is believed to be working from a similar analysis to the IMF's, while government think-tank the ESRI is expecting 0.2pc growth this year and a possible 0.7pc in 2011.

In today's note, Davy blames the deterioration in its forecast on weaker demand for Irish exports and falling consumer demand, as lower incomes and panic-saving conspire to cripple spending. Davy points out that Ireland's main trading partners have suffered a significant deterioration in their own financial positions since March.

Chief economist Cathal Mac Coille adds that the "risks" around Davy downgraded projections are "exceptionally large" given the continued downward trajectory of key global economies.

On depressed demand, the economist points out that there is a "danger" consumers "may maintain their current high levels of savings" after the next Budget comes out, even though certainty should make people reduce "emergency precautionary savings". Despite the bleak economic prospects, Davy says the Government should push ahead with the planned cuts in December's Budget.

Mr Mac Coille recommends "more aggressive action" on areas like public sector pay, rather than making capital spending the key focus of cuts.

The economist also says there is a case for "overachieving" on the strict budget targets laid down by the bailout troika, in the interests of "helping confidence".

This would encourage consumers to stop panic saving and encourage companies to start investing, he says.

Irish Independent

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