Upbeat growth forecasts reflect positive outlook
It is forecasting growth of 2.9% in gross domestic product this year.
To my knowledge, the previous most optimistic forecast was the 2.7% rate predicted by the ESRI in its Winter 2013 Quarterly Economic Commentary. It is refreshing to see upgrades to forecasts, because we had become very accustomed to constant downgrading in recent years.
The basis for the upbeat forecast is growth of 1.9% in consumer spending, and 21.5% in investment spending.
The positive growth in consumer spending is predicated on an additional 50,000 new jobs this year, and the fact that consumer confidence is currently at the highest level in almost seven years.
The trick in 2014 was always going to revolve around translating strong confidence readings into an actual increase in spending.
As consumer confidence gradually improved last year, a recovery in spending failed to materialise. At the end of the first quarter of this year, the trend appears to be changing.
In the first two months, the value of retail sales was 5.1% higher than the same period in 2013, and the volume of sales increased 7.2%.
However, when the motor trade is excluded, the growth in sales was more modest — the value of sales increased by 0.9% and the volume increased by 2.7%. We are still seeing a marked divergence between value and volume growth, reflection the inability to pass on higher prices to the consumer in many sectors.
Indeed, in the year to February, consumer prices declined 0.1%, suggesting many retailers are still finding it difficult to pass higher prices on to a still pressurised consumer.
New cars licensed for the first time in the first quarter were 27% up on last year. This is suggestive of a consumer starting to loosen the purse strings, and so while it is still very early in the year, the omens are suggesting that Ibec’s forecast for consumption may be realistic.
The forecast growth of over 21% in investment spending looks dramatic, but context has to be kept.
Last year, investment spending totalled €17.8bn in real terms, down from a peak of over €37bn in 2007. It slumped over that period, so a growth rate of over 21% would not be exactly shattering as it is coming off a very low base.
The construction component is clearly going to be stronger this year, but it is coming off a ridiculously low base. However, a meaningful recovery in business spending on machinery and equipment would be very welcomed. Ibec is picking up this positive outlook for spending from its members, so that has to have a good ring of truth to it.
I noticed on social media, trolls having a go at Ibec, just because the organisation has the temerity to be positive about the future.
This clearly does not suit some political agendas, but I cannot see how it would possibly be in Ibec’s best interests to produce an optimistic forecast that it does not believe to be true. That would make no sense whatsoever, and would presumably not go down well with its members. Confidence is important, and it is good to see it coming from Ibec.
Interestingly, the more positive Ibec view of the world would have been strengthened by the latest economic outlook from the IMF. It is the most upbeat IMF forecast in some time, with global growth projected at 3.6% this year and 3.9% in 2015. Such growth is still considerably lower than potential, but it is moving in the right direction.
The IMF did sound a strong note of caution for the eurozone, with a growth prediction of 1.2% this year and 1.5% next year. It also offered advice to the ECB to do more, which will not go down well with the mandarins in Frankfurt, but which is sound advice.
