The latest economic commentary from the Economic and Social Research Institute predicts that a slowdown in economic growth this year and next year will affect the public finances.
The think-tank expects GNP growth to ease to 4.8% this year, while it says a slowing of consumer spending growth in 2008 will lower the growth rate further to 3.7%. GNP growth last year was 7.4%.
The institute says these figures should be seen as 'a return to sustainable rates'. It sees housing investment dropping by 4.7% this year and 6.1% next year. The ESRI believes house prices will fall by 3% this year, but will stabilise next year.
The ESRI expects an Exchequer deficit of €1 billion in 2008, a deterioration of €3.3 billion compared with 2006. It also forecasts that employment growth will slow from 2.9% this year to 1.2% in 2008, mainly because of the building sector. But the institute also estimates that net immigration will slow to 50,000 this year and 25,000 next year, giving an unemployment rate of 5%.
The ESRI report says the economy must shift resources to other areas as the housing boom comes to an end. While it is optimistic that this will happen, it warns that this could be endangered if high inflation feeds into wage demands. It expects inflation to average 4.9% this year, falling to 3% in 2008, but this is largely due to an assumption that there will be no more interest rate rises.
