Economy to grow by 5% in 2006

THE EU believes the Irish economy will grow by 5% next year well ahead of the region’s average forecast growth of 1.2%.

A gradual revival of growth in the EU over the next two years was predicted by the European Commission although they lowered their forecast for this year to a meager 1.2%.

Ireland too will have increased growth from 4.5% this year to 5% in two years time but this will be driven mainly by domestic consumer demand.

Exports should pick up next year though will continue to remain the junior partner.

The autumn forecast holds some positive news for mortgage holders with core inflation rates having fallen from 2% last year to 1.5% in September.

This suggests oil price hikes have not triggered wage or other increases which would encourage the European Central Bank to raise interest rates sooner rather than later.

Delivering his twice annual forecast in Brussels, Joaquín Almunia, the Economic and Monetary Affairs Commissioner was upbeat.

On the negative side unemployment in the EU 25 will decrease only slightly over the next two years from 8.7% this year to 8.1% in 2007.

By contrast the 3.8% increase in employment in Ireland during 2005 is expected to continue, keeping unemployment below 4.5%.

The other major negative is the expectation that under their present policies the euro-zone’s three largest economies, Germany, France and Italy, will continue to post government budget deficits of over 3% with that of France and Italy increasing.

Ireland’s deficit is predicted to drop from 0.5% this year to 0.1% in 2007.

Globally GDP and trade growth is expected to moderate but remain vibrant.

The recent depreciation of the euro in relation to the US dollar and a general easing of competitive pressures is expected to allow Irish exports to perform more strongly than in the first half of the year when they were very weak.

The country’s economic momentum is being sustained by domestic demand helped by strong employment gains. Private spending should accelerate in 2007 when the bulk of the SSIA savings mature.

However there was a warning note in the report: “For the third quarter, purchasing managers’ indices reported increased activity for both manufacturing and services. Confidence indicators, however, did not fully confirm the brightening of the outlook across sectors, as there have been some fluctuations in consumer and retail trade sentiment.”