Supported by the booming domestic side of the economy, the Irish economy continues to grow at a strong pace, and has survived the first wave of uncertainty caused by the UK’s vote over a year ago to quit the EU, the Central Bank has found.
Reflecting increased optimism, the Central Bank raised its forecasts for GDP growth this year to 4.5% from 3.5% in its previous bulletin, and raised its growth outlook for 2018, to 3.6% from 3.2%.
“Recent evidence points to growth gathering pace,” officials said.
Large increases in a measure of domestic demand modified to exclude the distortions caused by a handful of multinationals and aircraft leasing firms on Irish growth numbers reflect that domestic demand is driving the engine of growth.
Domestic demand will surge 4.5% this year and climb 4% in 2018, with domestic industry, construction, and services at home outperforming the growth in exports, the bank forecasts in its latest quarterly bulletin. An additional 220,000 jobs since the depth of the slump five years ago is helping fuel that demand.
From a low base, construction has boomed. But significantly, the Central Bank highlighted that the number of people employed apart from construction has also climbed, and now exceeds the 1.9m peak of 10 years ago.
Nonetheless, Central Bank officials say there is no immediate fear of the economy overheating, pointing to migrants and participation levels that a “flexible” Irish labour force can tap.
Many firms have weathered the initial wave of uncertainty caused by Brexit but with Brexit yet to happen it cannot be taken for granted that the initial benign outcome will persist, particularly for Irish-owned firms, Central Bank officials, chief economist Gabriel Fagan and John Flynn, its head of Irish economic analysis, told reporters.
The Central Bank economists said that GNI* Star, the new measure devised by a group that included the CSO and the Central Bank, was its preferred and “realistic indicator” to measure the Irish economy because it showed the true picture of indebtedness in the economy. However, it wanted to let the new measure bed in before using it in its bulletins. Without citing specific budget choices, Mr Fagan suggested that over-shooting EU debt targets was desirable.
The CSO this month confirmed the economy is about a third smaller under GNI* and debt levels correspondingly higher than under GDP. GDP includes transfers of intellectual property and contract manufacturing by multinationals, which gave rise to the jibe of ‘leprechaun economics’ over Irish figures.
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