Shoppers will now drive the recovery, says Merrion

Consumers spending again on the Irish high street will now start driving the economic recovery, even though households are still juggling with huge debts and unemployment levels are still high, a leading economist has predicted.

Alan McQuaid, chief economist at Merrion Capital, said retail sales and spending by households and businesses will boost growth this year and next. He now says the economy will grow very strongly this year, by 4.2%, and will maintain its momentum to expand by 3.9% in 2016.

“Retail sales, though erratic, are up from year-on-year,” he said. “We will see wage increases. Employment is rising. More people are confident tthe crisis is over. All the ingredients are there for consumers.”

Household debt — Irish houses carry the second highest debt burden in the eurozone after Greece — and relatively high unemployment will continue to hold back the recovery for many people, Mr McQuaid warned.

Merrion is one of the first of the main forecasters to significantly raise its projections for the economy — before the CSO publishes its growth figures for the early part of the year at the end of this month. Many other economists are also ready to raise their forecasts.

The Department of Finance in its new economic statement in April projected growth this year of 4% and 3.8% next year. It may increase those forecasts in the budget in October.

Mr McQuaid said: “The Budget later this year, which will be the last before the scheduled general election in 2016, should deliver more reductions on the income tax side.

“There is also talk of some modest wage increases, though employers’ may oppose this on the basis that there is no inflation in the economy according to the consumer price index. But we expect some improvement in the wages picture.”

Mr McQuaid predicts that employment will increase and help drive the jobless rate down to 9.3% by the end of the year.

On house prices, Mr McQuaid projects further large rises. “There was an average official rise of 12.9% in house prices in 2014, up from 1.8% in 2013. Taking all the factors into consideration, an increase of 9.5% is projected for 2015,” he said.

Meanwhile, a survey shows the slow recovery in the North’s private sector economy continued in June, with new business order growth reaching a nine-month high. The Ulster Bank Northern Ireland purchasing managers’ index — a leading barometer of economic health in the region — dipped to 52.3 points, but posted the second successive increase in business activity.

Output, orders, exports, and staffing levels all increased in June, but activity and employment growth both slowed significantly. Hiring levels were at their weakest rate since January.