An incoming government can expect a “healthy” rise in tax revenues this year, as the economy extends a remarkable growth spurt of 6%, said Conall Mac Coille, chief economist at Davy Stockbrokers.
Detailing Davy’s new economic and fiscal forecasts, Mr Mac Coille said that after the long years of recession and austerity following the banking and property crisis, that the economy was “playing catch up” and was so far seeing off a number of economic threats from overseas.
Its projections, however, depend on Britain voting in its looming referendum, on June 23, to stay in the EU.
The broker’s forecast for 6% GDP growth is the highest for any private and public forecaster. It is based on the huge momentum the CSO recorded for the economy in the last three months of 2015 being carried through to this year.
Davy’s forecast compares with the 5.1% and 4.8% growth rates projected in recent weeks by the Central Bank and think-tank the Economic and Social Research Institute.
Mr Mac Coille said that Davy’s forecasts were also based on Britain staying inside the EU, but nonetheless showed the economy here was driving ahead despite a myriad of fears about China, world economic growth, and a possible slowdown in the UK economy.
He said government finances through the first three months of the year were affected by timing issues, and analysts were waiting to see how much is collected in corporate tax receipts in the coming months, which are skewed to the later part of the year.
However, “what we have suggests that tax revenues will continue to be healthy”, and the annual budget could be in balance, or even post a small surplus — two years ahead of schedule, Mr Mac Coille said.
The Davy forecasts show a dramatic fall in the State’s gross debt, to 94% of GDP at the end of 2015 and 89% of GDP at the end of this year.
Like other forecasters, the broker sees an increase in consumer spending helping to offset a slowdown in exports growth.
And despite the huge growth rates, unemployment will be fairly slow to fall, though Davy projects the jobless rate will drop to below 7% by December 2017, down from the current rate of 8.6%.
Boosted by rising wages, house prices will rise 5% this year, but Central Bank affordability rules will rein in house price gains in Dublin.
“Our upgrades reflect the exceptional 7.8% GDP growth in 2015. This momentum means that even if GDP flat-lined through 2016, the economy would still expand by 3.3% in the calendar year,” the broker said.
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