Investment-led recovery underway - GoodbodyThursday 16 January 2014 15.26
A new report from Goodbody stockbrokers has predicted that Ireland will have the third fastest growth in the euro zone this year.
In its latest economic report, Goodbody says that Ireland will see GDP growth of 2.6% in 2014, beaten only by Latvia at 4.1% and Estonia at 3%.
The stockbrokers said that after six years of contraction, an investment led recovery in domestic demand is now taking share.
To this end, they have upgraded their GDP growth predictions from 2.4% to 2.6%, with further growth of 3.2% pencilled in for 2015.
The country's budget deficit is set to have beaten Troika targets again last year, estimated at 7.3% of GDP.
For this year, Goodbody expects the deficit to come in at 4.7% of GDP, with a primary balance achieved for the first time since the financial crisis began.
On property, Goodbody said that tightening supply is set to continue to boost house prices, especially in urban areas, this year. The stockbrokers said that Dublin prices have already seen increases, while price rises outside of the capital city are expected in the coming months based on recent momentum.
Today's report says that the "most unambiguously positive development in the Irish economy over the past twelve months has been in the labour market". It noted that employment grew by 3.1% year on the year in the third quarter, the fastest rate of growth since 2007.
But despite this improvement, consumer spending remained weak due to the increased tax burden with the introduction of the new property tax and earnings weakness.
"We are seeing a broad based recovery in investment in the domestic economy", commented Goodbody's chief economist Dermot O’Leary.
He said that excluding the aircraft sector, which contracted in 2013, investment grew by 17% year on year in the third quarter of last year, its fastest pace of growth on record - albeit from very low levels.
"Construction investment is expected to grow strongly over the coming years on the back of rising prices and supply shortages in the Greater Dublin area in particular. Business investment is expected to continue to grow strongly on the back of strong FDI trends and an increase in investment by domestic businesses. We expect investment to grow overall by 8% in 2014 and 10% in 2015," the economist added.
Mr O'Leary says key issues for investors this year include debate about the country's corporate tax rate, continued adherence to reform programmes without Troika scrutiny, banking issues - including mortgage arrears and stress tests - and the country's return to the bond markets.