Investec Ireland predicts second election

The Irish economy will grow strongly, but faces increased challenges including a political stalemate which will likely lead to a second election this year — in November, Investec Ireland has predicted.

Wed, 30 Mar, 2016 - 01:00

Eamon Quinn

GDP will grow 5% this year and by 4% in 2017, while more jobs will help boost consumer spend.

However, chief economist Philip O’Sullivan said the unemployment rate will be slow to fall as returning emigrants and more people re-join the workforce.

Despite recording some of the highest growth rates in Europe, Irish unemployment will remain relatively high at 7.4% in 2018, according to the forecasts.

Mr O’Sullivan said home prices and rents are likely to rise by an average of 3% to 5% a year over the next few years, as supply constraints continue to weigh on the housing market here.

The economist said he would expect to see new supply of homes coming into the market, but that it will take a few years before 20,000 or 25,000 new homes that are required each year to meet rising demand will be delivered.

The competitive currency helped boost the economy last year, but risks of the UK voting to exit the EU in June, in a so-called Brexit, and other political risks “have intensified”.

Among such political risks is the US presidential election “that could lead to adverse outcomes for the Irish economy”.

Political impasse at home will likely lead to a policy paralysis in tackling “problems in housing and aspects of public investment, with unhelpful implications for competitiveness”.

“Our expectation is that this (a minority Fine Gael administration) will prove short-lived, with another election due in November, if the government fails to secure sufficient support for October’s Budget.

"With that being said, given the minor policy differences between the mainstream parties — who secured three-fifths of the vote in the last election — we do not expect any material policy shifts in Ireland for the foreseeable future,” said Investec Ireland.

The Dublin office market is a “sweet spot” for land lords, though the economy will benefit as new projects start to come on the market from late next year.

Listing the economy’s strong points, Investec Ireland points to strong jobs growth last year by IDA-funded companies; a high level of goods exported to Europe and North America; and a “resilient” export performance that has helped push the State’s balance of profits back into a surplus.