Davy revises down economic forecast

Davy stockbrokers has revised down its economic projections for this year, predicting the economy will grow by 1.6 per cent this year.

That’s a fall from the 1.9 per cent growth in gross domestic product for 2011 predicted by analysts in October last year. The same report also forecast gross national product, which excludes repatriated profits from multinational companies, would grow by 1.2 per cent. The updated prediction revises that down to 0.6 per cent.

Next year, GDP is expected to grow by 2.4 per cent, while GNP will rise by 1.7 per cent.

Growth in exports, which has largely been supporting the economy, will slow from 10 per cent in 2010 to 6.8 per cent, Davy said, before declining to 5 per cent in 2012.

Domestic demand will continue to be restrained, hindered by bank credit which will affect investment spending and discourage consumers from spending savings. The report also predicted a contraction in consumer spending of 1.4 per cent this year.

Davy analyst Conall MacCoille forecast a “gradual” pickup in non-construction sector investment and said consumer spending would begin to rise in 2012.

Unemployment will also remain high, the report said, with employment expected to decline by a further 1.8 per cent in 2011 before graduially increasing by 0.4 per cent next year.

The outcome of the stress tests for Irish banks could be crucial for the economic outlook, Mr MacCoille said.

“If Irish banks are judged to be well capitalised and ECB support maintained, funding conditions could improve,” the note said. “Our central view is that the funding problems facing Irish banks will not be resolved quickly, in part because of uncertainty surrounding the withdrawal of ECB funding.”