Central Bank predicts 2.1% GDP lift

The Central Bank has delivered its most upbeat assessment of the economy since the economy crashed in 2008 in its latest quarterly bulletin.

It forecasts GDP growth of 2.1% this year and 3.2% next year with GNP growing 2.2% and 2.5% over the same period. While the Central Bank has trimmed its forecasts for export growth from 4% to 3.5% this year, this has been compensated by an increase in the forecast for domestic demand from 0.9% to 1.5%.

Over the past few years, the economy has relied heavily on exports for growth, as the domestic economy remained floored by high debt levels and weak demand.

Central Bank chief economist Lars Frisell said that, even though Ireland had regained the confidence of the markets, it was important to maintain fiscal discipline over the next few years in order to meet the 3% budget deficit target by 2015 agreed with the Troika.

He noted that the economy was carrying high levels of debt, which would make it sensitive to international developments.

Mr Frisell did not expect the banks to need more capital following the stress tests later this year. He cited resolving the mortgage arrears crisis as one of the biggest remaining challenges facing the economy. However, the banks are meeting the resolution targets they were given last year, he added.

Consequently, he did not expect any capital charges to be applied this year. Last year the Central Bank announced that any banks that did not meet their mortgage arrears resolution targets would be hit with higher capital charges this year.

The outlook for employment has greatly improved over the past year. Employment growth is expected to grow by 2% this year and 2% next year. The unemployment rate is expected to fall to 11% at the end of next year, compared with a rate of 14.6% at the end of 2014.

Mr Frisell warned that there could be no let-up in restoring the economy’s competitiveness.

“While moderate wage growth and reductions to the cost base of the economy have helped restore some of the competitiveness lost during the boom, further improvements in productivity and competitiveness would help to boost Ireland’s growth potential and support further employment growth.”