SSIAs to fuel 6% economy hike

GROWTH forecasts for the economy have been increased by a full 1% to 6% by Davy Stockbrokers as over €5 billion of SSIA money is set to be unleashed on the economy.

Overall one million savers have chalked up €16bn in SSIA accounts and, starting next month, the accounts start to mature.

Davy chief economist Robbie Kelleher reckons that up to 35% (slightly over €5bn) will be splashed out on DIY, cars, holidays and other consumer goods. He reckons the remainder of the cash bonanza will be used to pay down debt or reinvested as savings.

With the average account worth about €16,000 Mr Kelleher said "the amounts were too small to have any material impact on housing demand overall".

Nevertheless the boom in construction is set to contribute significantly to growth in the economy for some time to come as huge investment in housing and infrastructure looks set to continue indefinitely.

Mr Kelleher's figure of 6% GNP for 2006 compares with a much more modest forecast recently of another leading economist, Jim Power of Friends First, who said GNP this year would rise 4.9%.

Within the revised forecast Mr Kelleher has also upgraded his estimates for consumer spending. Last year consumers spent 5.6% more than in 2004. And with the SSIA's about to break on the scene Davy Stockbrokers have raised their consumer spending figures from 6.5% to a revised 7.5% in 2006. As the SSIA's continue to impact next year they say consumer spending will rise by a further 6% in 2007.

Buoyancy in construction refuses to die down, said Mr Kelleher. Already housing output in 2006 is ahead by 20% and Davys are predicting 85,000 homes to be built in 2006 against 81,000 last year.

Demographics are also influencing the level of economic output as the population grew by 100,000 in the year to end April 2006, said Mr Kelleher.

On top of that the Government injected €2.5bnfrom this year's Budget into the economy which is also providing a huge stimulus to growth, he said.

The other side effect of the boom is the impact on the Government's tax take. Mr Kelleher said tax revenue this year will be €2bn more than the Budget estimate which should leave the deficit for the year at €800m against a Budget figure of €2.9bn and paving the way for another very generous Budget in the run-up to the election.