The economy is going from strength to strength and there are few, if any, clouds on the horizon, according to the Central Bank autumn bulletin.
The Bank has increased its economic growth forecast, lowered its inflation prediction and even sees unemployment finally turning the corner. The Bank's assistant director general, Dr Michael Casey, sounded a very positive note. "You can't argue with success," he said. "Everything is going very well. There is rapid growth and stability. Unemployment is coming right and the current inflation numbers are comforting."
However, he added that inflation would tend to pick up later in the year and accelerate in 1998.
According to the Bank, inflation remains subdued despite strong growth as a result of continued wage moderation, strong retail competition and the strong exchange rate earlier this year. Mr Oliver Mangan, economist at AIB Capital Markets, said next week's inflation data would show that the Central Bank was now much closer to the eventual outcome than the Department of Finance, which has predicted a rate of 1.8 per cent. "The Bank is striking a much less concerned note than it has in the past," he said.
The Bank also noted that private sector credit has failed to turn down. According to figures released yesterday, it fell back slightly to 20.2 per cent in July from 20.7 per cent in June. However, the Bank noted that changes in the way the information was collated mean the numbers are not directly comparable.
Mortgage growth also remained strong, reflecting the general strength in the economy. Mortgage growth eased slightly in July, allowing for the addition of two new lenders to the data.
Bank officials added that they have not seen any evidence of a pick-up in repossessions. In fact, there had been about 50 less repossession last year and 25 less this year than in previous years, Mr Gareth Murphy, assistant director general on the supervisory side said.
The Bank expects domestic demand to remain strong over the rest of the year, underpinning strong rises in investment and exports. It expects a rise of 11 per cent in total investment with both construction and machinery investment expected to increase strongly. The numbers are also rosy on the output side. The Bank noted that some commentators were worried last year that output from the high technology sector was in decline, but that now appears to have reversed. News on unemployment is also generally encouraging, according to the Bank. "The trends suggest the problem is being solved," Dr Casey said. He added that, on an EU-standardised basis, unemployment was now 10.25 per cent, below the EU average.
The Bank is forecasting a rise of 48,000 in total employment but, because of increased participation and continued immigration, this will only lead to a decline of 10,000 unemployed on a labour force survey basis or 11.25 per cent, it said.
The Bank has also made a more optimistic forecast of the level of Government borrowing which will be needed this year. It said a "significant undershoot" of the £637 million borrowing target can be expected. It has now pencilled in a target of £300 million and officials admitted that may even be too pessimistic.
