Irish economic growth will remain the highest in the euro zone in 2004 and for the subsequent two years, according to new forecasts from the EU Commission. However, it warns that growth in the euro zone overall will be hit by rising oil prices and the rising euro is also a threat.
Following other forecasters, the Commission has sharply increased its estimate for Irish gross domestic product (GDP) growth this year.
It now predicts that GDP will rise by 5.2 per cent, well up from its earlier prediction of 3.7 per cent. It has upped its 2005 Irish GDP growth forecast from 4.6 per cent to 4.8 per cent and has pencilled in a 5 per cent prediction for 2006.
These forecasts are the highest in the euro zone for each of these years. However, the Republic has been joined at the top of the growth league by some of the new member-states, with Estonia, Latvia, Lithuania and Poland expected to grow faster than Ireland this year.
Looking to next year, Irish consumption spending should be underpinned by continued employment growth and it should be boosted in 2006 by money coming from Special Savings Incentive Accounts, according to the Commission's economic outlook, published yesterday. However, investment spending may ease off as house completions slow.
The performance of the international economy and oil prices "are the key medium-term risks", it says. Unemployment is expected to remain at less than 4.5 per cent.
The outlook for the public finances is seen as favourable, with low borrowing in 2005 and 2006 - with the general Government deficit remaining around 0.5 per cent of GDP in 2005 and 2005 - and the national debt stabilising at just over 30 per cent of GDP.
In contrast, the EU executive told Germany, France, Italy, Greece and Portugal that their budget deficits would be close to or above the much-flouted EU limit under current policies and said it would take disciplinary steps if needed.
There were glimmers of good news as the Commission hiked its euro-zone 2004 growth forecast to 2.1 per cent from 1.7 per cent - its first growth upgrade in two-and-a-half years - and predicted 600,000 jobs would be created in the bloc this year.
But there was no disguising the fallout from oil prices. The Commission cut its euro-zone 2005 growth forecast to 2 per cent from 2.3 per cent, which it had predicted in April. It also warned that a higher euro could hit growth.
The forecasts helped to knock back the euro against the US dollar. It was trading yesterday below $1.2750, down from its eight-month peak of $1.28041.
Currency markets were also affected by US consumer confidence data which, while poor, were not as bad as some analysts had predicted. The Conference Board's gauge of US consumer confidence fell to 92.8 in October, the lowest level in seven months.
Additional reporting - Reuters
