Economy to grow 6.5% this year driven by exports, says Ibec

Employers' group Ibec has forecast that the economy in Ireland will grow 6.5% this year driven in the main by strong exports.

However, in its latest Quarterly Economic Outlook, it also predicts that unemployment will remain high at 15.6% in 2021, falling to 9.3% next year.

The organisation thinks consumer spending will bounce back from negative territory last year to grow 6.4% this year.

But it also forecasts that investment will continue to contract, falling by 21.8% in 2021 before rising by 8.8% next year.

"The economy is set to emerge strongly from the Covid crisis," said Gerard Brady, Ibec chief economist.

"The first half of 2021 has seen the export engine of Ireland’s economy continuing to fire and a level of normality is now returning to most domestic sectors."

Mr Brady warned, however, that the Government will have to exercise fiscal discipline if it wants to maintain a sustainable recovery.

Building a Sustainable Recovery post-Covid is the theme of the National Economic Dialogue which gets underway today. It will take place in a virtual format over the next two days.

Ibec is one of the stakeholders taking part, giving its views ahead of this year's Budget.

Speaking on Business on Morning Ireland, Mr Brady said the Government needs to ensure resources continue to be available and used strategically to fix priority economic challenges, including housing, infrastructure, climate change and population ageing.

"We are saying that the Government is going to need to prioritise and show discipline in terms of prioritising those major, major issues, over and above other issues if it's going to achieve those significant priority issues in the coming years."

Ibec expects exports will continue to power ahead, rising by 5.3% this year before increasing further to 6.3% next year.

But it is also cautioning that inflation will continue to rise, up 1.2% this year and rising further to 2.1% in 2022.

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"From a business perspective, the enthusiasm from reopening has been somewhat dampened by growing fears of competitiveness pressures driven by both rapid international price increases on key goods and freight, and by domestic policy," Mr Brady added.

"Whilst strong activity on reopening will be welcomed by business, these additional costs may mean significant margin compression and profitability challenges for some."

He said the economy is also facing threats to its business model from global corporate tax change.

"All of these will have challenging implications for economic growth, business competitiveness and tax revenues in the months and years ahead."