GDP growth forecast to reach 0.2%
Davy’s chief economist Conall MacCoille says the economy is stuck between contracting domestic demand and growing exports. He sees exports rising by 2.6% this year and 3.2% next year. However, domestic demand is expected to fall by -2.2% in 2012 and -0.6% in 2013. Investment is forecast to decline by -2.1% this year before rebounding to 1.3% growth next year.
Moreover, there are signs that most sectors of the economy are stabilising. Average weekly earnings are down between 6%-9% since 2008. The unemployment rate is at a stubbornly high 14.8%, but private sector employment has stopped falling and the bulk of job losses in the private sector have been completed.
House prices look undervalued, said Mr MacCoille, but a recovery in housing will be delayed because banks are not back to normal lending rates.
The supply of housing stock is constrained by the low level of repossessions. There are 84,000 residential mortgage holders in arrears of 90 days or more, and 29,000 mortgage holders in the buy-to-let category are also in arrears by 90 days or more. Given these levels of arrears there should be roughly 20,000 houses repossessed, estimates Mr MacCoille. But the lack of personal insolvency legislation is hampering this, he said.
Barry Dixon, head of research at Davy Stockbrokers, in his outlook for 2013 argues that investors should look at companies that have a technological advantage, a dominant market position and exposure to high-growth developing markets.
Investors should also look for companies with a strong balance sheet and sustainable cash generation, “which support value enhancing activities including dividends, accretive acquisitions and share buy backs”.
Bank of Ireland, CPL Resources and, to a lesser extent Grafton, offer investors an opportunity to buy into an Irish recovery story, says Mr Dixon.
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