Expectations for a rate hike have gathered pace but its timing will likely depend on the outcome of elections in France, Germany and Italy. There is, however, little doubt German central bankers will up pressure on some sort of tightening of rates, said Alan McQuaid, chief economist at Merrion in its latest outlook.
The Irish banks are in much better shape but Mr McQuaid said even a quarter-point rate hike here could have an outsized effect on indebted Irish households and firms which are still struggling with the fallout from the financial crash. “There are still a lot of people paying back debt and a lot of people who are in negative equity,” he said.
Criticising the introduction of the Help to Buy incentives for first-time buyers, Mr McQuaid said house prices will continue to surge by up to 9% annually “for the foreseeable future” because the supply of new homes will continue to fall short of demand. The house price forecast implies that boom time prices of a decade ago could be reached over the next three years.
Merrion is the latest forecaster to project the Irish economy will cope in the next two years with the uncertainties of Brexit and the protectionist pledges by President Donald Trump.
GDP will climb 4.4% this year and expand 3.8% in 2018, it forecasts. Small firms will likely be affected “but at this juncture, the Irish economy appears to be holding up well” as the Brexit talks get under way. Yesterday, Finance Department secretary general Derek Moran told a Dáil committee the economy would grow between 4% and 4.25% this year.