The Irish economy could grow by as much as 4.3% this year despite various looming headwinds which could hamper its performance.
“Prospects for the year ahead are looking better than at the beginning of the year,” according to Friends First chief economist Jim Power in his latest economic outlook.
“Sterling has stabilised, the labour market is strong, business investment intentions are promising and real GDP could well expand by 4.3% this year, which is up from a forecast of 3.3% at the beginning of the year.”
Mr Power’s outlook is in line with that of the Department of Finance in its recent monthly economic bulletin. However, the Government currently sees growth slowing to 3.7% next year.
Indeed, while Mr Power said that Ireland’s overall trade performance should hold up for the rest of the year and most economic indicators are continuing to develop in a positive manner; he pointed to mounting cost pressures on consumers, employment increases failing to translate into improved income tax revenue, pressures on expenditure levels, the housing crisis and Brexit uncertainties as challenges to future growth.
“The areas of priority should include controlling all of the costs of doing business, particularly pay pressures on the public sector; all aspects of infrastructure; the supply of high quality affordable housing and high quality public services,” said Mr Power.
Mr Power added that the financial burden on the personal sector remains “intense”, with house prices pressurising mortgage payments and the rising cost of living soaking up disposable incomes.
Mr Power’s forecasts were backed up by the publication of strong data from varying sources.
Investec’s latest purchasing managers’ index for the services sector showed the rate of growth in business activity remaining sharp in May. The index reading was only slightly below April’s 10-month high level.
Furthermore, the latest survey showed services firms to be at their most confident regarding their 12-month business outlook for three months.
The CSO reported a 7.9% monthly increase in manufacturing production in April, albeit with a 1.1% year-on-year drop noted. The tech and pharma-heavy ‘modern’ sector drove performance with a 12.9% monthly rise and a 2.6% annualised increase, while the domestic economy-related ‘traditional’ sector showed monthly and yearly declines of over 3%.
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