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Domestic demand is a big boost to growth

DOMESTIC demand is expected to make a bigger contribution to growth than previously thought, the Central Bank has said, reflecting the strength of the recovery.

In its latest economic bulletin, Dame Street said the economy is expected to grow by 3.8pc this year, fractionally better than had been anticipated, and 3.7pc next year, fractionally less than a previous forecast.

The Central Bank bulletin comes ahead of Exchequer Returns due to be published later this afternoon.

These are expected to show that the tax take remains better than expected, fuelling expectations that the Government will be able to unveil a more generous Budget amid hopes that better-than-expected revenues and strong growth will help it achieve its fiscal targets.

The Central Bank (above) said the momentum of recovery in the economy continues to build, with domestic demand now making a significant contribution to growth.

"While there is little change to the overall outlook for GDP growth in 2015 and 2016, as compared to the forecasts published in the last Bulletin, the composition of growth is slightly changed, with domestic demand now seen as making a stronger contribution than previously envisaged," the bank said.

For this year and next year, it estimates that domestic demand is expected to grow, on average, by 3.4pc-a-year supported by further gains in consumer and investment spending.

"As a result, it is envisaged that GDP growth will be increasingly driven by domestic sources in coming years," the it said.

Consumer spending is expected to grow by 2.2pc this year, twice the rate recorded last year. The bank is forecasting that the unemployment rate will drop to 9.8pc this year and to 8.7pc next year.

But chief economist Gabriel Fagan said the main message is that the Government must continue the process of fiscal consolidation.