Average GNP growth of 1.2% - DKM

An aggregate of economic forecasts suggests Irish economic growth of 1.2 per cent this year, according to survey by DKM Economic Consultants.

In its Economy Watch DKM said average GNP growth forecasts have been revised down by one percentage point since its Spring issue and further downward adjustments were expected by its next issue in 2009, chairman Brendan Dowling said.

Earlier this week the Economic and Social Research Institute (ESRI) forecast that the economy would enter a recession this year and contract in size by 0.4 per cent

DKM compiles its report by averaging the forecasts from 13 sources, including the Department of Finance, ESRI, Central Bank, OECD, stockbrokers and main banks.

Under this system older forecasts are given a smaller weighting.

The report notes that the 1.2 per cent GNP growth average is buoyed by three relatively old forecasts of around 3 per cent.

Mr Dowling said the deflationary impact of oil at €140 had not been fully factored in to the forecasts and that high oil prices were acting as a "tax on importing countries".

"2008 growth forecasts have come tumbling down, as we suggested was likely in our last Economy Watch. Just this week, the ESRI slashed its GNP forecast to a 0.4 per cent contraction this year," said Mr Dowling.

Looking forward to 2009, he said average growth forecast was 2.6 per cent, although in this case further downward revisions were expected as weak consumer spending and private investment are factored in.

With Exchequer returns for the first half of the year due out next week, DKM said the average Government deficit forecast was now 1.8 per cent, although it noted that the International Monetary Fund has forecast a 3.2 per cent deficit.

The report shows an aggregate inflation rate of 3.7 per cent for the year but notes that recent rises in fuel, food costs and mortgage repayments mean this "may be too optimistic".

As the construction slowdown spills over from residential into commercial activity public spending projects worth almost €13.7 billion this year were going to play a key role in sustaining this sector, the DKM report said.

In that context, "recent noises from Government regarding possible retrenchment of the NDP are worrying" Mr Dowling said.