Davy says economic growth will fall to 2.1%

ECONOMIC growth will plunge to its lowest level since 1991 this year as the housing crisis hits the economy hard.

GNP growth will fall to 2.1% said Davy Stockbrokers in one of the most pessimistic forecasts to date.

The recent ESRI forecast is for 2.3% growth this year while the Government is working off its 3% budget estimate of December 5.

The crunch point for housing is coming and Davy is forecasting 45,000 housing completions for 2008, down from 55,000 earlier.

It also expects 45,000 completions in 2009 and estimates 78,000 units were built in 2007.

Every reduction of 10,000 houses knocks GNP by 0.7% and costs about €1bn in lost revenues to the State.

Once the correction in housing is achieved Davy predicts the economy will deliver 3.8% GNP growth in 2009 and to stay within a growth range of 3%-4% in the years ahead.

Some trend estimates range higher at between 4%-5%, but with house building slowing and immigration starting to ease Davys said the lower figure of between 3% to 4% is more realistic.

Head of Research at Davy Stockbrokers, Robbie Kelleher, said the forecast for this year has to be seen in the context of outstanding growth by this economy since 1993 which delivered average growth of between 6%-7% which others would have “bitten our hands off to achieve”, he said.

But he said the spate of pessimism over Irish share prices was over done.

With the ISEQ 30% off its June high and down over 26% in 2007 current stock prices implies a loss of earnings of up to 40% next year.

“I wouldn’t be surprised if the ISEQ this time next year will be 20% higher than where it is now,” he said.