ESRI cuts Irish growth forecast to 4.6%

The Economic and Social Research Institute has scaled back its full-year Irish economic forecast amid a slowdown in activity in recent months in the UK ahead of this week’s referendum on EU membership.

The think tank sees gross domestic product expanding by 4.6 per cent this year, according to its latest quarterly economic commentary, having forecast 4.8 per cent. It sees the economy expanding 4.1 per cent next year.

However, Ireland is set to retain its title as the fastest-growing euro zone economy for the third year in a row as consumer demand and domestic investment take over from trade as key drivers of growth, says the ESRI.

Intellectual property

ESRI senior economist

David Duffy

said imports should outstrip exports this year and next as strong Irish investment involves the acquisition of patents and intellectual property rights from overseas and the import of raw materials and goods to meet rising consumer demand.

“The fact that net trade is making a negative contribution to growth is also a reflection of the strength of the economy,” said Mr Duffy yesterday. “We’re a small, open economy so we import a lot of what we consume and we import a lot of resources.”

The ESRI sees the number in employment breaching two million next year for the first time since 2008. It expects employment to fall below 7.5 per cent in the final quarter this year and to less than 7 per cent towards the end of 2017.

Brexit effects

While the ESRI economists said it’s too early to predict the impact of Brexit, concerns about the UK leaving have already had an impact on economic indicators. These include the easing of growth in manufacturing orders, as indicated by the purchasing managers index series. “You can say with certainty it’s already impacting negatively,” said Kieran McQuinn, adding investment has “almost been on hold in the UK” in recent months, while exporters have been hit by exchange volatility.

If housing supply starts to pick up to the country’s need for 25,000 units a year, from 13,500 home completions this year, the economy may start to overheat, said Mr McQuinn. Such a scenario could push unemployment below 5 per cent again.