IMF expects Irish economy to expand by 5% in 2016

The International Monetary Fund (IMF) expects the Irish economy to grow by 5 per cent this year, more than three times the euro area average.

In its latest economic outlook report, the Washington-based fund also suggests Ireland had the most to gain from a greater liberalisation of international trade.

It assessed the potential productivity gains across advanced economies from an easing of barriers to trade and foreign direct investment (FDI).

The elimination of remaining tariffs, it estimated, would trigger a 7.7 per cent jump in productivity in Ireland compared to an average of just 1 per cent across advanced economies as a whole.

Productivity - the amount of output per unit of input- is a significant barometer of an economic health. When it is growing, living standards tend to rise.

The bigger potential gains predicted for Ireland stem from the relatively large pharmaceutical sector and its reliance on imported inputs, which would become cheaper in the absence of tariffs.

The EU is currently in negotiations with the Mercosur bloc of South American countries with a view to liberalising trade between the regions.

However, the Irish Government is concerned that a concession on tariffs to South America would open the floodgates to ultra-cheap agricultural imports, including beef, potentially damaging Ireland's export trade.

In its report, the IMF predicts Ireland’s gross domestic product (GDP) will expand by 5 per cent in 2016, compared to a euro area average of 1 per cent, and by 3.6 per cent in 2017.

The fund also expects Irish inflation to pick-up to 0.9 per cent this year as a result of a modest rise in global oil prices and several other domestic factors. The rise in consumer prices last year averaged out at zero.

Similar to other forecasts, the IMF expects Ireland’s unemployment rate to hit 8.3 per cent this year before falling to 7.5 per cent in 2017.

At the height of the financial crisis in 2012, Ireland’s jobless rate rose to 15.2 per cent.

The Central Bank has repeatedly warned that the State's headline growth numbers are being distorted by multinationals, and that real economic activity is better illustrated by the growth in employment and the consequent decline in unemployment.

Last year, Irish GDP growth surpassed even the most optimistic forecasts, expanding by 7.8 per cent. This was more than three times that recorded in either the US or the UK, and nearly five times the euro area average .