Investec talks up Irish recovery

The interest rate connected to Government debt is expected to decline further before the end of this year, as the country continues to distance itself from periphery eurozone nations.

In its latest economic outlook on Ireland, specialist bank Investec yesterday offered a broadly upbeat picture for the next few years — stating unemployment will continue to fall, GDP will continue to rise, the country’s budget deficit will keep narrowing and consumer spending will gradually pick-up.

While a little more sober in its outlook for headline economic growth than some, Investec still feels confident that GDP will grow 2.5% this year and roughly the same for the next two years. GNP, which excludes the economic contribution of multinationals, should grow just under 3% this year and next.

Boosted by a likely much less austere Budget in October, consumer spending should show a sustained return to growth this year, gradually building to a level of 2% annual growth in the coming two years.

While the proportion of the live register which is classified as “long-term unemployed” remains “worryingly high”, Investec still envisages the country’s headline unemployment rate continuing its steady annual decline — falling from 13.1% to 11.4% by the end of this year and then reducing to 10% next year and as low as 8.8% by the end of 2016.

It also expects the Government to continue monetising its banking sector assets over the coming 12 months. Along with popular belief, Investec reckons the Government will restructure its AIB holdings — presumably largely converting its preference shares into ordinary equity — later this year, after the results of the ECB bank stress tests.

The State is then likely at some point during 2015 to test the markets by attempting to sell part of its near 100% equity stake in the bank. House prices, says Investec, will rise by around 10% (it previously mooted a 6% price rise) this year as building activity is still well behind demand.

It added that last year’s tally of 55% of house transactions not involving a mortgage should be equalled this year.

“[House] completions activity remains quite muted, with lead indicators suggesting no change is likely in the short-term,” the bank said in its commentary.