Friends First economist Jim Power predicts that the Irish economy should deliver GDP growth of around 5% and GNP growth of around 4.5% in 2005
The economist says the outlook for the Irish economy in 2005 'looks pretty good'. He says that business investment spending recovered strongly during 2004 and this is likely to be sustained into the coming year.
He says that consumer spending power is likely to by buoyed up in 2005 by a strong jobs market, reasonable growth in wages and the 'generous' Budget that was delivered in December. Inflation is likely to edge back from current levels and could average around 2.5% for the full year while unemployment should also continue to edge lower and could hit 4% later in the year.
However, he cautions that exports will remain vulnerable to the uncertain vagaries of the euro and predicts that it will be another challenging year for the sector.
On the housing market, Mr Power says that it is set to remain buoyant this year and any shock to the market looks as unlikely today as it did a year ago. He says that demand will continue to be driven by strong inward migration, falling household size and a continuing favourable interest rate environment.
He predicts that new house prices will rise by at least 5% and second hand prices by around 7% this year. This follows estimated growth of 9.5% and 12% respectively in 2004.
Mr Power also says that omens for the global economy look reasonably good. He said that in the final weeks of 2004, there were clear signs that the slowdown in the global economy was starting to run its course and most economic indicators had started to improve.
'This stronger momentum should carry over into 2005 and the current consensus is that the global economy should be capable of growing by close to 4% over the coming year, down from around 4.5% in 2004,' he said.
The US economy is once again expected to lead global growth and while some slowdown from 2004 is expected, it should still be capable of growth of around 3.5%. The euro zone will continue to lag behind with US with predicted growth of 2% in 2005, while growth in the UK will ease back to 2.7%.
On interest rates, the economist says that the Bank of England may even be tempted to cut rates during 2005, while US rates will edge back to what he called more normal levels. However, in Europe there is unlikely to be any real pressure on the ECB to do very much anytime soon.
'But the risks would appear to be skewed towards modestly higher euro zone interest rates at some point in 2005,' he adds.
