Economy entering new ‘virtuous’ growth phase

Leading Irish economists are considering increasing their growth forecasts later this month, as the recovery enters a new phase that looks more like the early “virtuous” years of the Celtic Tiger before the economy ballooned 12 years ago.

Citing a wide-range of short- and leading-term economic indicators such as government tax receipts, purchasing managers’ surveys for the manufacturing and construction industries, and signals from commercial property advisers showing a large pick-up in demand for industrial spaces around the Dublin region — the forecasters say the economic recovery is entering a new “mature life”.

Economists say, though, they are awaiting the publication by the CSO of GDP figures later this month that they expect to upgrade their growth forecasts soon after then. Austin Hughes, chief economist at KBC Ireland said he will likely increase his outlook from the growth rates of 4.5% this year and the rate of 3.8% he is predicting for 2016, when the CSO publishes its data.

“What we do know is that the economy has had a very strong trajectory, and it is becoming more broadly based. You can quibble whether it will be as high as 5%, but the broad message is relatively strong growth,” Mr Hughes said.

The composition of growth is “altogether more promising”, with greater domestic spending, strong tax data and other short-term indicators showing the economy is doing well, he said.

Philip O’Sullivan, chief economist at Investec Ireland, said he too may raise his growth forecasts because the momentum appears behind the recovery.

He said that changes to the components of the official GDP figures for the early part of the year, due to be published in late July should not alter the overall picture.

Mr O’Sullivan forecasts a 4% growth rate in 2015 and 3.7% in 2016.

“The Purchasing Managers’ Index, which is a good leading indicator for the Irish economy has been pretty healthy, showing broad growth right across the manufacturing sector.

“There are other indicators such as the double-digit growth in tax receipts, which is really encouraging because they show what the underlying economy is doing. And labour market developments appear very strong,” he said.

The economy is now displaying some aspects of pre-bubble Celtic Tiger, Mr O’Sullivan said.

“It is really encouraging where the growth is coming from. You have got investment growth as businesses have the confidence for the first time in years to invest.

“And CSO figures show goods vehicles sales were up 51% in the first five months from a year earlier. And then exports have got a very decent tailwind from the currency which is emphasising attractiveness of exports growth to the US and the UK,” Mr O’Sullivan said.

He said though the headline export numbers can be distorted by the activity of multinationals, that indigenous firms have nonetheless had quite a good start to the year.

Conall MacCoille, chief economist at Davy Stockbrokers, said there were elements of the pre-bubble Celtic Tiger economy.

“Pharmaceutical exports are really increasing strongly and the IT sector continues to invest, and then you have food — Irish food and beverages production has risen 10% in the first part of the year,” he said.