AIB positive on economy despite housing slowdown

Despite a slowdown in housing activity, the prospects for much of the economy are still quite favourable, the AIB said in a statement today.

“Non-residential construction activity is expected to remain very buoyant. It is also encouraging to see a marked pick up in Irish manufacturing output and a rebound in service exports.

“Global growth is expected to stay quite strong, helping exports. Net trade should make an increasingly important contribution to GDP growth in the next two years. We look for GDP growth to remain relatively robust at 5.0% in 2007, down from 6% in 2006.

“Housing output looks set to decline further next year, with house completions forecast at 75,000, down from an expected 82,500 this year and over 88,000 in 2006.

“Meanwhile, the impact of maturing SSIAs and an expansionary fiscal policy is likely to be less pronounced in 2008. Interest rates are also continuing to move higher. We expect a significant deceleration in consumer spending growth next year.

“Overall GDP growth is forecast to slow to 3.7% in 2008 on the back of weaker growth in the three main components of domestic demand - household spending, current government expenditure and fixed investment. We look for domestic spending to rise by just 2.5% next year, down from over 5% in 2006 and 2007.

“The boom in housing has come to an end but we do not expect a housing market crash or severe

negative consequences for the economy.

“It is worth noting that we expect the economy to grow by 5% this year and close to 4% in 2008, despite a fall of 15% in housing completions over the two years.

“Indeed, the recent stabilisation of house prices and expected fall in housing output are welcome

developments as the market was in danger of becoming over extended.

“The slowdown in housing should be offset to some extent by strong growth in non-residential

construction activity, which had been quite weak up until last year, especially public capital spending.”