The International Monetary Fund has upgraded it growth forecast for the Irish economy, saying real gross domestic domestic product will expand by 3.6 per cent this year and by a further 3 per cent in 2015.
The upgrade for Ireland, from a previous forecast of 1.7 per cent GDP growth in 2014 and 2.5 per cent for 2015, came as the Washington-based fund marked down its forecast for growth in the global economy.
With the Irish economy advancing rapidly this year, the latest IMF projections remain well below local assessments.
While Minister for Finance Michael Noonan is preparing Budget 2015 on the back of a 4.7 per cent growth projection this year, some private sector economics believe growth could yet exceed 6 per cent.
The IMF forecasts world growth to come in at 3.3 per cent this year, down 0.1 percentage point from the IMF’s July forecast, and the 2015 forecast has been marked down by 0.2 percentage points to 3.8 per cent.
“The recovery continues, but it is weak and uneven,” said IMF economic counsellor Olivier Blanchard as the fund published it biannual World Economic Outlook report.
“Looking around the world, economies are subject to two main forces. One from the past: countries have to deal with the legacies of the financial crisis, ranging from debt overhangs to high unemployment,” he said.
“One from the future, or more accurately, the anticipated future: potential growth rates are being revised down, and these worse prospects are in turn affecting confidence, demand, and growth today.”
The report said downside risks have increased since the spring, noting that short-term risks include a worsening of geopolitical tensions and a reversal of recent risk spread and volatility compression in financial markets.
“Medium-term risks include stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets,” it said.
The report said financial markets have been optimistic, citing high equity prices, compressed spreads and very low volatility.
“However, this has not translated into a pickup in investment, which – particularly in advanced economies – has remained subdued,” it said.
“There are concerns that markets are underpricing risk, not fully internalising the uncertainties surrounding the macroeconomic outlook and their implications for the pace of withdrawal of monetary stimulus in some major advanced economies.”
The IMF said euro area growth came to a halt in the second quarter of the year, mainly due to weak investment and exports sand noted that uncertainty remains about the persistence of the growth slowdown.
“ In the euro area, the priority is to strengthen the recovery, raise inflation, and lift medium-term growth through a mix of accommodative monetary policy, strengthening bank and corporate balance sheets, completing the banking union, and implementing structural reforms.”
