The economy could grow by as much as 8.9% this year, according to the Economic and Social Research Institute — nearly double the level initially expected.
The forecast is a significant increase on the 4.7% rise the ESRI said it was expecting as recently as mid-June. The reason for the higher growth outlook, it said, is faster-than-expected domestic economy growth and multinational activity significantly impacting Ireland’s trade balance.
“Domestic consumption and modified investment have grown at a faster pace through the first half of 2018 than was previously expected,” the economic think-tank said in its latest outlook report.
“Secondly, considerable volatility in the trade balance, with imports registering negative growth over the same period, has also led us to revise our forecasts. This change is mainly due to a sizeable reduction in imports of research and technology-related services amongst certain multinational firms.”
Noting that the trade balance makes a significant contribution to economic growth, the think-tank said “significant risks” — mainly in the form of Brexit and US trade policy — are looming. It said global risks are likely to be “particularly elevated” in 2019.
The ESRI has also upped its outlook for 2019. It now expects 4.5% GDP growth instead of less than 4%. Exports should grow by 7.5% this year and by 5.2% next, it said, with consumption up by 2.9% in 2018 and 2.5% in 2019.
It expects the unemployment rate to be at 5.7% by the end of this year and to fall to 5.1% by the end of 2019.
“Our forecasts for 2019 are subject to the technical assumption that an agreement along the lines of the European Economic Area will exist between the UK and the EU after March 2019,” said the ESRI.
It warned against “an explicitly contractionary budget” next month, which, in the case of a no-deal Brexit, “may amplify the potential fallout from an economic downturn and reinforce the shock on the economy, rather than insulate it”.
Elsewhere in its outlook, the ESRI said it expects house build completions to total 18,550 this year and 24,500 new houses to be built next year. It also expects upward pressure to continue on both house prices and rental costs. Affordability difficulties are likely to be exacerbated as a result.
Noting new mortgage lending levels remaining in double-digit percentage growth and a rise in SME lending, the ESRI said “careful monitoring is required”, given the pace of acceleration in new lending.
“The Irish economy continues to perform significantly better than most OECD economies and is, once again, likely to register the fastest growth rate in the euro area in 2018,” it said.