Growth is predicted to fall to lowest rate since 1993
Marc Coleman, Economics Editor
Economic growth next year will fall to its lowest rate since 1993, according to two forecasts published yesterday.
The Economic and Social Research Institute (ESRI) said growth would remain above 5 per cent this year before falling below 4 per cent in 2008 as housing investment levels off.
In 1993, the year that the Celtic Tiger emerged, growth was 2.3 per cent.
In its Spring Quarterly Economic Commentary, the ESRI also warns the Government to tackle the economy’s falling competitiveness by taking action to cool rising inflation and borrowing.
In a separate forecast, Davy Stockbrokers cut forecasts for growth this year from 5 per cent to 4.5 per cent. This follows Wednesday’s release of data showing that house building fell in the last quarter of 2006 for the first time since 1997.
Davy forecasts that new house building will fall by a further 5,000 units in 2008, and says this will hit growth next year.
“We expect a further deceleration in the rate of growth of the economy in 2008. Housing output is forecast to drop to 75,000 new units and the pace of growth in consumer spending should slow to 2.5 per cent as the SSIA impact is reversed,” says Davy economist Rossa White.
Wednesday’s data, which was published by the Central Statistics Office (CSO), also showed a sharp annual decline in exports during the final quarter of 2006. Davy forecasts growth will slow to 3 per cent in 2008.
A study by Euroframe, a network of 10 forecasting and research institutes across Europe, including the ESRI, says the dollar is likely to weaken further this year and next, placing more pressure on exports.
The study, included in the commentary, says the dollar will fall to $1.35 against the euro this year and $1.40 in 2008. Currently, the euro trades around $1.32.
Gross Domestic Product (GDP), the level of annual output of goods and services in the economy, will grow by 5.4 per cent this year but by 3.9 per cent in 2008, the Quarterly Economic Commentary predicts.
“This slowdown in growth is driven by a slowdown in housing investment, while investment in other building and construction should continue to grow strongly, driven in part by investment under the latest National Development Plan,” ESRI economist Dr Ide Kearney said yesterday.
The commentary contains an assessment of the sustainability of recent economic trends, in which the ESRI warns that the economy is increasingly vulnerable to housing market changes and high inflation.
“A decline in real house prices could lead to a much larger reduction in the scale of house building. The economy has been losing competitivenesss since 2002. We argue that it is now imperative to halt this trend.”
The ESRI expects falling competitiveness will cause export growth to slow from 5.6 per cent in 2007 to 5.2 per cent in 2008, lower than the respective rates of import growth of 7.0 and 5.7 per cent. “As a result, Ireland will lose market share.”
However, it also forecasts inflation will slow significantly from a predicted rate of 4.6 per cent this year, to 2.6 per cent in 2008.
A study of Ireland’s adjustment to EMU, contained in the ESRI commentary, says the performance of Ireland’s economy has been successful “up to now”, but warns that its resilience will be “fully tested” should a downturn occur.
According to the study, Macroeconomic Adjustment in Ireland under EMU, public sector wage restraint is needed to lower spending growth and inflation.
It warns that Ireland has the largest share of exports outside the euro zone of any other euro zone economy, making it exceptionally vulnerable to both a downturn in the US economy and a depreciation in the US dollar. It also recommends reducing the economy’s dependence on the property market, and calls for the introduction of a tax on second dwellings and the abolition of mortgage interest relief.
Â© 2007 The Irish Times
Also this article inside paper is quite bearish. I am bearish so I will post mainly bearish articles . There are some good things happening in the economy but overall I’m very negative for economy over next decade.
End of Celtic Tiger next year, says ESRI**
Economic forecasts: GDP predicted to slow to a ‘more sustainable rate’, writes Marc Coleman , Economics Editor.
The period of exceptional economic growth known as the Celtic Tiger will come to an end next year, according to two new economic forecasts released yesterday.
In an assessment of the sustainability of the economy’s 15-year-long boom, the Economic and Social Research Institute (ESRI) also warns that it is now “imperative” to stop the economy from losing competitiveness.
According to forecasts contained in the ESRI’s latest Quarterly Economic Commentary, Gross Domestic Product (GDP) is set to grow this year by 5.4 per cent before slowing to what the authors term a “more sustainable” rate of 3.9 per cent in 2008.
Davy stockbrokers forecast, also published yesterday, suggests the economy will expand by 4.5 per cent this year, slowing to 3 per cent in 2008. Growth in GDP - the traditional measure of economic output - has remained above 4 per cent every year since 1993.
Davy’s yesterday revised downwards their forecast for 2007 from 5 per cent, in response to data released by the Central Statistics Office (CSO) on Wednesday, which showed that new house building fell by 1.7 per cent year-on-year in the final quarter of last year, the first fall since 1997.
The data also reported that net exports - the contribution of exports to the economy adjusted for imports - declined by 10.2 per cent in the same period.
“This slowdown in growth is driven by a slowdown in housing investment, while investment in other building and construction should continue to grow strongly, driven in part by investment under the latest NDP,” ESRI economist Dr Ide Kearney said yesterday.
Describing the latest ESRI forecasts as a “soft landing”, she added that the economy was becoming more vulnerable to the housing market.
“A decline in real house prices could lead to a much larger reduction in the scale of house building.”
The ESRI has calculated that, of the 310,000 houses built in the last four years, some 122,000 are now lying idle “Is this sustainable? We would argue not, but we are forecasting a soft landing for the economy,” Dr Kearney said.
Dr Kearney, who along with Dr Alan Barrett and Yvonne McCarthy wrote the commentary, said inflation would continue to decline from its early-2007 peak of 5.2 per cent. However, it is expected to average 4.6 per cent for the year.
This is higher than previous ESRI projections, a move attributed to the expectation that the European Central Bank will raise interest rates once more this year. According to the ESRI forecasts, actual house prices will grow at rates below the rate of inflation this year and next, reducing the degree of overvaluation in the market.
However, Dr Kearney warned that speculators could trigger a “much sharper correction” in the market if confidence was damaged. “We need to find out why people are buying second houses and we don’t know. That’s key.”
Davy economist Rossa White said new house building would fall by some 5,000 units in 2008, acting as a “drag” on the economy.
Â© 2007 The Irish Times