Irish economy ‘to keep growing’ despite headwinds

Commentators still expect the economy to continue its impressive growth surge this year following its best performance in 15 years despite domestic political uncertainty, the Brexit threat and a slowing global economy.

Latest CSO data yesterday showed that the economy, in GDP terms, increased 7.8% in 2015 and 5.7% in GNP terms, which excludes contribution from multinational companies. The GDP reading comfortably beat some forecasts, which had pencilled in a 7% increase, and meant Ireland was the fastest growing economy in the EU for a second consecutive year. It outpaced eurozone growth by almost five times and hit the highest expansion rate since 2000.

The fourth quarter of the year saw GDP grow 2.7% on the preceding three months and 9.2% on an annualised basis. Even with some considerable potential headwinds, consensus thinking is for further growth of at least 5% in 2016.

“Full-year growth was driven largely by multinational sector investment which was up 28% year-on-year. However, growth was broad-based last year, with consumer spending up 3.5% — the fastest outturn since 2007 — and exports 13% higher.

The base effects from 2015 mean that GDP will probably be above 5% in 2016 compared to our previous range of 4.5% to 5%,” said David McNamara of Davy Stockbrokers.

“The higher nominal GDP out-turn also means that the government’s debt metric now looks more favourable; debt should be about 95% of GDP in 2015, compared to a previously expected 97%,” he said.

“Already the indicators for the early part of 2016 point to another very good year ahead for the Irish economy despite some global headwinds. At this juncture, we expect GDP growth of somewhere between 5% and 6% in real terms this year, again the best performance in Europe.

“However, if in its referendum on June 23, Britain were to vote to leave the EU, then it would have serious negative implications for Ireland, particularly in regard to external trade, reducing GDP growth in the process,” said Alan McQuaid, chief economist at Merrion Stockbrokers.

Ulster Bank economist, Simon Barry warned that some “cooling” in headline growth rates, this year, is “very likely”.

“There are some prominent sources of international downside risk to the Irish outlook including those stemming from emerging market weakness, a recent loss of momentum in advanced economies, Brexit, volatility in financial and commodity markets, and geopolitics; while domestic political risks are higher than in recent years linked to uncertainty surrounding the formation of the next government,” he said.

However, he said: “Overall, while downside risks need to be monitored carefully, barring a meaningful shock, Ireland looks set to continue to enjoy solidly healthy growth in 2016, albeit not quite at the truly exceptionally rapid rates of last year.” Separate CSO figures yesterday showed a 0.4% monthly rise in consumer prices in February, but noted a 0.1% drop in year-on-year terms.

“Ireland’s average inflation rate was -0.3% in 2015, compared with 0.2% in 2014. At this juncture we are looking for only a modest overall increase of 0.3% in the consumer price index in 2016, with the services sector the main source of upward pressure,” said Mr McQuaid.