Merrill forecasts 1% GDP growth

Merrill Lynch forecasts that Irish GDP grew by 0.2% last year, saying it will grow by 1% this year.

The US investment bank’s projections are more conservative than most Irish-based forecasts.

The Department of Finance has pencilled GDP growth of 1.5% this year and predicts it reached 0.9% last year. The latest Goodbody Stockbrokers’ economic outlook has revised upwards its GDP growth forecast from 1.3% to 1.6% in 2013.

Merrill Lynch chief market strategist, Johannes Jooste, blamed the relatively weak Irish growth on continuing weakness across the eurozone. Merrill Lynch forecasts that the eurozone will shrink by -0.4% this year against a Bloomberg consensus of -0.1%.

Mr Jooste, who spoke at a press briefing in Dublin yesterday, said there are a number of risks to the global economy this year, including elections in Italy and Germany and talks on the US debt ceiling. However, these risks will not be as disruptive as last year. The global economic backdrop is more benign this year as US housing shows tentative signs of recovery and Chinese growth has proved to be more resilient than expected last year, he added.

Overall, Mr Jooste expected equity markets to outperform bonds this year. European equities, particularly financial stocks and luxury brands with exposure to the high growth Asian market, offer compelling valuations, he said.

Goodbody economist, Dermot O’Leary, is becoming more bullish on the Irish economy. “Domestic demand grew in the third quarter of 2012 for the first time in over four years. Net trade continues to grow strongly, while the current account has moved from a large deficit to a large surplus. Ireland’s bond yields have continued to fall and the sovereign, the banks and the semi-states have all returned to primary issuance.”

Mr O’Leary predicts growth next year will reach 2.6%, compared with a previous forecast of 2.3%. Domestic demand is seen growing by 0.4% this year and 0.5% next year.

Ireland will most likely exit the EU/IMF bailout programme at the end of this year, although in view of the uncertain climate, the Government should use the support provided by the ECB’s OMT [outright monetary transactions] programme to shore up confidence, said Mr O’Leary.