Bank of Ireland is predicting a slowdown in the economy next year as the booming housing industry cools, net job creation slows and a sharp fall in inflation is expected. However, it adds that the Government's fiscal position is not a cause for concern.
The bank's Quarterly Economic Outlook, published today, says that the economy will see growth of 4% in 2008, before recovering to 5% in 2009.
'The Irish economy expanded rapidly in the first half of 2007 - GDP grew at an annual 6.7%,' commented Bank of Ireland's Chief Economist Dan McLaughlin.
'This GDP performance is well above the 5.4% growth trend established since 2000 but activity looks set to slow somewhat over the next 18 months, primarily reflecting a housing market correction,' he added.
He says that house completions are set to decline to 72,000 this year from over 88,000 in 2006. Completions are expected to further decline to 58,000 next year. He says these declines, however, are ultimately supportive of house prices and he predicts a growth rebound in 2009.
The bank's quarterly review sees consumer spending growing by 4.5% in 2008, after 6% growth this year.
The review says the more modest projection for personal consumption next year reflects a slowdown in household income growth which in turn reflects lower employment growth. Net job creation is expected to come in at 43,000 against 72,000 this year. It also predicts a slowdown in migration, at least for the next 12 months.
Dr McLaughlin says that wages will be supported by a sharp fall in inflation next year. This is forecast to average 2.7%, down from 4.8% this year. He also predicts two interest rate cuts from the European Central Bank in the second quarter of 2008, which will also put more money into people's pockets.
The economist says the Government's finances should not be a cause of concern. 'The Minister for Finance has announced a spending total for 2008 which is virtually identical to that signalled 12 months earlier, and tax revenue is forecast to exceed day-to-day spending by €6.06 billion,' Dr McLaughlin says.
'This hardly suggests the need for revenue-raising measures,' he concludes.
