Growth rate set to rise to 5.3%

The Republic will continue its impressive economic performance, with growth this year of 5.3 per cent rising to 5.7 per cent in 2007, according to AIB Global Treasury.

This would represent an increase on a growth rate of 4.7 per cent in gross domestic product (GDP) in 2005.

AIB is forecasting gross national product (GNP) growth of 5 per cent this year and 5.5 per cent in 2007, compared to 5.4 per cent last year.

Domestic demand will continue to be the main driver of GDP growth, with domestic spending predicted to rise by 6.4 per cent this year.

Consumer spending will strengthen further in 2006, according to AIB's economic outlook, against a favourable backdrop of 3.5 per cent employment growth and increases in disposable income as a result of measures in last December's Budget.

The bank predicts consumer spending will increase by 6.5 per cent this year and accelerate further to 8 per cent in 2007, when two-thirds of Special Savings Incentive Accounts (SSIAs) are due to mature.

However, AIB chief economist John Beggs said there was no evidence of a debt-fuelled consumer spending binge. The economy's reliance on the construction sector had declined since 2004, he added.

"On the negative side, our inflation performance currently looks a touch on the high side at 3.3 per cent, but more than half of this is due to higher housing-related costs and higher energy prices."

The under-pressure manufacturing sector remains a problem area and services exports also weakened in 2005.

But AIB predicted exports would pick up this year, growing by 7 per cent in 2006 and 6 per cent next year.

Mr Beggs said he believed the rate of export growth last year was higher than the official reported rate of 1.8 per cent.