BoI lowers outlook for economic growth

Bank of Ireland has lowered its outlook for Irish economic growth this year by 0.5%, saying GDP should grow by 1% and not the 1.5% rate it had previously forecast at the turn of the year.

In his latest quarterly economic outlook, published yesterday, Bank of Ireland’s chief economist, Dr Dan McLaughlin said that export performance is slowing and dampening growth

“Exports grew by just 0.5% in the latter half of 2012, while imports expanded by 2.7% with the result that net exports proved a drag on GDP, leading to a flat reading in the fourth quarter, following a 0.4% contraction in the third quarter,” Dr McLaughlin said.

The current consensus for Ireland’s GDP growth this year is 1.3%, although the Central Bank lowered its outlook from that figure to 1.2% earlier this month. Last week, the Nevin Economic Research Institute upped its 2013 growth forecast from 0.6% to 1%; but overall the consensus seems to be moving downwards.

However, in yesterday’s update, Bank of Ireland Global Markets did actually forecast an upswing in domestic demand — with 0.3% growth likely to show the first increase in six years.

“Real household incomes may be supported by modest increases in wages and employment, a cut in the ECB repo rate and a fall in inflation to just 1.1%, but crimped by higher taxes,” Dr McLaughlin said.

“Spending is also likely to be curbed by ongoing de-leveraging and it appears that the gross savings ratio rose sharply last year after declining over the previous two,” he added.

Bank of ireland is expecting Irish exports to grow by 1.5% this year, “with downside risks” attached to that outlook.

“Import growth is forecast to be 1%, with the result that the external sector continues to contribute positively to GDP, but at a much more modest pace than seen in recent years,” it added.

In his January bulletin, Dr McLaughlin had forecast 1.5% GDP growth.