Growth and employment picking up pace this year, says Davy

Davy Stockbrokers expects unemployment to dip to just over 9.5% next year and by a further 1% in 2016 as recent indicators suggest Ireland’s economy is the fastest growing in the Eurozone.

The recent pick-up in the economy has led to Davy upgrading its forecast for GDP growth to 3.5% this year, from the 2.5% previously predicted.

Forecasts for 2015 and 2016 are for 3% and 2.8% growth respectively — which would return GDP to pre-recession levels by 2016.

Consumer spending is predicted to improve substantially despite sluggish improvements to date, with a 1.5% expansion anticipated by Davy this year and 1.9% in 2015.

With the domestic economy and export sector also performing better than expected, growth in exports is now expected to reach 3.5% this year and 4% the following year.

“The big picture is that the temporary negative impact of the pharmaceutical patent cliff is now waning,” said Davy’s chief economist, Conall Mac Coille. “The clear recovery in the domestic economy should become apparent in GDP growth in 2014, artificially depressed by poor export performance among multinationals last year.

“With GDP growth envisaged to be close to 3% thereafter, Irish GDP in real terms will return to pre-recession peak levels by 2016,” he said.

Davy, in line with other forecasts, is also forecasting a budgetary adjustment of €500m in the upcoming budget, saying that such an alteration would be sufficient to see the deficit fall to 2.9% of nominal GDP.

However, Davy warned that the IMF and EU Commission estimate that the output gap is close to 1% and will close to zero in 2015, suggesting little room for a further bounce- back in the economy.

Mr Mac Coille also warned that construction is well below peak levels despite recent improvements.

He said that should the government succeed in relieving constraints on construction activity and contain house price inflation by encouraging housing supply, their forecasts for GDP and employment growth may be surpassed.