Irish growth to exceed eurozone

The Irish economy will grow at twice the rate of the eurozone economy over the next three years, helped by a recovery in domestic demand and export growth, according the EY Eurozone Forecast.

The consultancy firm expects Irish GDP to increase by 1.9% in 2015 and 2.5% and 2.8% over the two subsequent years. This compares with a GDP growth forecast for the eurozone of 1% next year and 1.6% each year over 2016 and 2017.

Mike McKerr, partner at EY Ireland, said: “Although the overall outlook remains patchy, there is finally some more positive news to report in this forecast, particularly in the peripheral countries in the eurozone.

“As their economies continue to rebalance and their labour forces become more competitive, businesses from Ireland, the rest of the eurozone and other parts of the world could gain a competitive advantage by expanding operations or exporting into these countries.”

Much of Ireland’s growth will be fuelled by exports. The EY Eurozone Forecast has pencilled in export growth of 3.5% this year and 3.7% next year. “Government’s steady implementation of reforms has led to a significant fall in labour cost, increasing Ireland’s competitiveness. This will lower export prices and therefore support volumes,” said Mr McKerr.

However, eurozone growth will be much more constrained than its main trading partners, although it noted that there are grounds for cautious optimism on the basis that is a gradual recovery in consumer spending and business investment.

There will be a divergence in growth rates between core countries and also between periphery countries, it added. Germany is set to power ahead, but France is only expected to grow by 0.7% this year.

Tom Rogers, senior economic adviser to the EY Eurozone Forecast, said: “The eurozone recovery is likely to gather momentum this year but risks to the forecast do remain. While the risks of a breakup have diminished and some of the peripheral countries have surprised on the upside, deflation and unemployment will remain ongoing concerns.”

“As a result of the ongoing deflationary threat, the need for the ECB to be prepared to loosen monetary policy further remains high. Latest inflation data show the danger of deflation is very real and even assuming a steady recovery unfolds we expect inflation to remain well below the ECB’s target for some time.”