Bank of Ireland has predicted that the economy will grow by as much as 3% this year and that 40,000 jobs will be created. This is in sharp contrast to recent forecasts from other organisations such as the ESRI, which has predicted no growth in employment at all.
But Bank of Ireland's chief economist Dan McLaughlin insisted today that strong employment growth in the services sector would more than compensate for job losses in the construction sector. He also said that the economic slowdown was likely to cost the Government €1 billion in tax revenue this year.
In its Quarterly Economic Outlook, BoI predicts that GDP will expand by 3% this year and 4% in 2008. It had previously predicted growth of 4% in 2008 and 5% in 2009.
The bank's group chief economist Dan McLaughlin says the country has experienced cyclical slowdowns - each with a different driver. He says the main factor behind this slowdown is declining residential construction, with house completions set to fall to 50,000 this year from over 78,000 in 2007.
'This rapid supply response by the building sector is ultimately positive for the housing market but is negative for GDP, knocking 1.3 percentage points off the average growth rate in 2008,' Dr McLaughlin said.
He adds that an expected 10% increase in state spending on non-residential construction will only partly offset the housing decline, with the result that construction overall is set to fall by over 5% in 2008.
Bank of Ireland also predicts that consumer spending is set to slow to 4% in 2008, down from 5.4% last year, in response to slower growth in household disposable income.
Exports are forecast to grow by 5% this year, down from 8.2% in 2007, with the slower pace of growth reflecting the euro's appreciation against the dollar and weaker growth in the country's major export markets.
The economist also says that the impact of the turbulence in financial markets since last August adds to the uncertainty for the economy. 'The global supply of credit may also be curtailed for a time and, as a result, we now expect a less rapid recovery in 2009 with growth set to pick up to 4%,' he states.
