Central Bank upgrades growth forecast for 2015
The economy will grow faster than previously forecast in 2015 thanks to strengthening domestic demand, the Central Bank predicted yesterday.
But it also said last year's recovery may have been weaker than suggested because of accounting anomalies by certain companies.
The Bank has joined both the Fiscal Advisory Council and International Monetary Fund (IMF) in pointing out that GDP last year - at an estimated 5.1pc - was inflated by so-called contract manufacturing, involving just a handful of most likely high-tech companies.
This is where an Irish- resident firm contracts a manufacturer abroad to produce a good for supply to a client overseas. The sale of the good is recorded as a goods export, while the contracted production is considered a service import.
And although the bank now believes the economy will grow at a faster pace than it anticipated in 2015, it warned the Government to keep tight control of the public finances to meet EU targets. It warned debt, at 111pc of GDP last year, remained at elevated levels.
Central Bank chief economist Gabriel Fagan said fiscal consolidation of at least 0.5pc of GDP would be needed in the years ahead to meet EU rules about balanced budgets, and to eliminate the structural deficit.
"This fiscal consolidation is needed. We're not out of the woods yet," he said, at the launch of the Central Bank's first quarterly bulletin of 2015.
And he urged the Government to put any extra revenue raised into lowering the deficit.
The Bank said exports from Ireland last year grew much faster than demand from overseas customers, with the difference attributed to contract manufacturing.
"What it suggests is that the underlying strength in the economy is less than signalled by the GDP growth of 5pc," said John Flynn, head of the Central Bank's Irish economic analysis unit.
Late last year the Fiscal Advisory Council warned the strong GDP figures last year should be "taken with a pinch of salt" because of the export anomalies.
The Council said contract manufacturing would have boosted GDP in the first half of the year by about 2.5 percentage points. The Central Bank, however, declined to put a figure on the impact. Mr Flynn said the recovery was continuing to broaden and gain momentum, with exports the main driver of growth last year.
However, he said GDP growth in 2015 is expected to be 3.7pc - 0.3 percentage points higher than the Bank's previous quarterly bulletin because of the projected improvement in domestic demand.
The Bank is also forecasting a slightly stronger growth forecast for consumer spending and investment spending this year compared with previous forecasts.
GDP this year is expected to be 3.7pc, rising to 3.8pc next year, on the back of stronger personal spending.
The unemployment rate is expected to dip to 10.4pc this year, and drop further to 9.3pc in 2016.