Ireland will not be immune from a slowdown in the world economy and sluggish exports will cap GDP and GNP growth below 5% this year, moving up to 6% in 2006, according to a new report.
The latest quarterly economic review from Bloxham Stockbrokers says that although Irish economic growth is strong, with an increase in personal consumption of over 4% this year, there are signs that industrial output is weakening and there is pressure on exports.
Alan McQuaid economist at Bloxham says : 'we are now looking for GDP growth of 4.7% and GNP growth of 4.5% in 2005. A further rise in personal spending next year should see GDP growth rising back to 5.0% in 2006'.
He said Irish inflation remains benign and projected an average headline rate of 2.25%, with a modest drop in average HICP inflation to 2%.
The report says that despite stronger than expected growth in Germany and Japan, the global economic recovery is in danger as growth remains subdued and although a major slump is not imminent the two main engines of global expansion US private consumption and China investment spending are likely to cool rather than increase.
On the employment front the report gives a positive outlook, though there will be casualties in manufacturing. A further 45,000 jobs will be created this year, with the jobless rate falling to 4.2%, according to the report.
On the public finances the report says the expectation of higher tax receipts, the usual savings on the Central Fund, and lower capital borrowing than officially projected, will translate as an underlying Exchequer deficit of _881,800m and a General Government Balance of close to zero.
The report says that with Eurozone economic activity still sluggish, a rate hike from the ECB still looks some way off, and the ECB will raise rates by 25bps to 2.25% in the final quarter of the year.
Rising US interest rates should continue to support the dollar in the short-term, and the report expects the euro to fall back below the $1.25 level and down towards $1.20.
