ESRI sees strong growth despite global risks

The Irish economy will face down a slew of threats facing the world economy and continue to post strong growth through 2017, the ESRI think tank has predicted.

GDP will grow 4.8% this year and by 4.1% in 2017 despite the risks of a slowdown in China and the UK ‘Brexit’ vote on leaving the EU in June, it said in its latest quarterly review.

Government tax revenues will continue to grow and the annual budget could be in balance as early as next year, if strong growth were to persist.

The ESRI forecasts suggest unemployment will be slower to fall. It projects the jobless rate of 8.7% by the end of this year and a rate below 7.5% at the end of next year.

Since the start of the year, the slump in world stock markets has reflected threats to emerging markets and rising corporate debt and fears about the health of some of Europe’s largest banks.

The Economic and Social Research Institute said, examining employment and productivity trends, that the economy probably expanded last year by 5.5% compared with the official 7.8% rate.

It said however that its favoured measure of expansion — GNP — also suggest the economy is growing at a fast clip.

GNP will grow 5% this year and by 4.3% in 2017, it forecasts. Employment growth across the regions, however, shows a mixed picture, it said.

The Midland, Border, and South East areas increased employment by 14.3%, 13.7%, and by 13% since 2012.

Dublin employment has grown 9.7%, but jobs growth in the South West, at around 2.5%, has been much more modest. Employment in the West contracted over the same period.

The ESRI said the inconclusive election outcome is in the short-term unlikely to weigh on its economic forecasts.

On housing, the think tank projects that the housing crisis will extend for at least another year — with 17,500 homes being built in 2017 still falling short of the annual average of 25,000 new builds required.

However, the ESRI says that politicians and policy makers should be prepared if the housing shortage gap were to be closed much earlier than expected.

Regional imbalances also show through in house prices.

Research by the think tank had shown home prices climbed 50% in south Dublin and by 40% in Dun Laoghaire-Rathdown between early 2013 and the end of 2015.

In Dublin City, Cork City, Galway City and Dublin commuter counties, prices grew by over 30% in the same period.

The ESRI’s Kieran McQuinn, who formerly worked at the Central Bank, said that there was room for improvement in the so-called macro-prudential rules to take account of housing supply, as well as the existing loan-to-value and loan-to-income ratios.

He said that policy makers might under current conditions loosen the rules because supply was limited. However, if new home builds were to accelerate the rules should be transparent to help politicians and policy makers “buy into” the rules.

The ESRI estimates that the number in negative equity had fallen below 100,000 from over 300,000 — representing about one in every seven mortgage holders and a diminishing threat to the domestic economy.

Still-high levels of mortgage arrears present a bigger problem.