The Irish economy has been given a major thumbs up before next month’s pivotal budget with the country predicted to once again be one of the fastest growing economies in the world despite a range of economic headwinds emerging this year.
Having been the poster boy of European recovery over the past number of years, a range of obstacles including a fragile domestic government and the UK’s decision to leave the EU have shaken economic confidence in recent months.
Investec Ireland chief economist Philip O’Sullivan has given the economy a clean pre-budget bill of health, however, arguing that a range of indicators point to a strong finish to the year for the Irish economy.
Mr O’Sullivan is also sticking to his full-year growth projection of 4.8%.
“Notwithstanding the deteriorating outlook for some of Ireland’s major trading partners, an examination of many of the key data points around the economy confirms a resilient performance, particularly in terms of underlying domestic demand.
“We leave our headline estimates unchanged so even if growth disappoints Ireland should remain one of the fastest growing economies in the developed world,” Mr O’Sullivan said.
Retail sales volumes have emerged as a cornerstone of the economic recovery which was initially heavily export-led.
Consumers flocked to stores in July when sales volumes reached an all-time high topping the previous Celtic Tiger peak.
Initial shocks to the system arising from the UK’s Brexit vote seemed to reverse in subsequent data releases and Mr O’Sullivan sees the driving forces of the recovery continuing for some time yet.
“While the KBC-ESRI Consumer Confidence Index weakened slightly around the UK’s Brexit vote, the uptick seen in August provides reassurance. The upturn in consumer spending is being facilitated by rising numbers at work and a gradual recovery in average weekly earnings.
“Lead indicators such as the employment component of the Investec Services and Manufacturing PMIs suggest that these trends have further to run.”
Brexit uncertainty and adverse currency movements as well as slower growth in key trading partners have made for tougher opening months of this year after a stellar 2015 for exporters.
While exports remain in growth territory political and economic events in both the UK and US which account for a combined third of Irish exports will have to be monitored in the coming months.
Mr O’Sullivan is also taking confidence from a falling national deficit and expected strong tax returns in the final months of 2016.
With just 7,750 new homes built to the end of July, the ongoing housing shortage shows no signs of abating, however, with a lack of supply predicted to persist until the end of the decade, according to Investec.
The Government has set a target of building close to 14,000 homes this year rising to its annual target of 25,000 by 2020.
Meanwhile, newly released Central Bank figures show that Irish SMEs continue to pay down debt at a faster rate than they’re taking on new loans.
Gross new lending to SMEs — outside of those in the financial and property sectors — rose by €143m to €858m in Q2 of 2016 though.
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