Economy can grow 5% for 10 years

ONE of the country’s leading economists says the economy has the ability to grow by 5% a year for the next 10 years.

A GDP figure of 5% and somewhat lower GNP figure of 4.5% are not outrageous forecasts for the economy, he said.

Dermot O’Leary, chief economist, Goodbody Stockbrokers said several factors are conspiring to make such a growth profile possible.

Net migration of 30,000 per year for the next decade is on the cards while by 2025 the population will have risen by a further million to 5.1 million.

Taking those demographics into account, Mr O’Leary said it was perfectly reasonable to project GDP growth of 5% per annum across the next decade.

Mr O’Leary was commenting after the publication last Friday of the National Accounts.

It showed the economy continued its strong growth profile in the second quarter of the year, he said.

GDP growth accelerated to 4.1% year on year (yoy) in Quarter 2, while GNP growth was estimated at 3.1% yoy.

However, Mr O’Leary believes the figures fail to do full justice to the underlying economic picture that justify his higher growth forecasts. “While impressive, these estimates in fact understate the strength of domestic activity in the first half of the year.”

Our preferred measure of activity in Ireland is domestic demand, which expanded by 6.3% yoy in the second quarter of the year, he said.

That implies an increase of 6% in domestic demand for the full year, he said.

Add to that strength of employment, earnings and retail sales growth and it becomes obvious that consumption continues to contribute healthily to the overall growth aggregates.

In his view, real consumption grew by 4.7% yoy in Q2 and “we are optimistic that this healthy spending profile will persist over the remainder of the year, despite the effects of higher energy costs,” he said.

Despite a slowdown in new-house building, investment grew by an impressive 11.4% yoy in real terms in the second three months of the year. That was accounted for in large part to a surge in machinery and equipment investment, which expanded by 30% in the quarter, he said.