The Irish economy is forecast to expand by 1.8% in 2014, up from the 1.7%, that’s according to the spring EY Eurozone Forecast (EEF) (Ernst & Young Global).
The recovery in domestic demand now appears to be more entrenched, while net trade will continue contributing positively to the economy.
EY expect GDP to increase by 1.9% in 2015, and then to accelerate to growth of 2.8% a year in 2016–18.
Mike McKerr, Managing Partner, EY Ireland said that, although the overall outlook remains patchy, there is finally some more positive news to report in this forecast, particularly in the peripheral countries in the Eurozone.
“As their economies continue to rebalance and their labor forces become more competitive, businesses from Ireland, the rest of the Eurozone and other parts of the world could gain a competitive advantage by expanding operations or exporting into these countries,” he said.
As a result of the Government’s commitment to the structural and fiscal targets set out by the European Union (EU) and International Monetary Fund (IMF) in 2010, in return for the €85b bailout, Ireland is pulling ahead of the other peripheral Eurozone countries. Indeed, government bond yields have fallen to 3.3% from a peak of more than 14% at the height of the debt crisis in 2011. In addition, the Government is on track to lower the fiscal deficit to 3% of GDP in 2015, in line with the target outlined by the European authorities.
… as consumer spending begins to accelerate Irish consumption has remained very weak since 2008, with consumers struggling with high household debt and muted wage growth. However, this trend is gradually reversing, primarily due to improvements in job prospects.
There has been a marked improvement in the labor market. Unemployment (on the International Labour Organization measure) fell to 12.1% in December 2013, compared with 14% a year earlier. It is likely to have peaked and is forecast to continue to decline, reaching 11.4% by the end of 2014.
At the same time, inflation, in line with the Eurozone-wide trend, slowed noticeably during 2013. The EU-harmonized inflation rate was down to just 0.4% in December 2013, from 1.7% a year earlier. Amid weak demand, EY expect it to remain under 1% over the course of 2014, which will help to boost consumers’ purchasing power and in turn support consumer spending.
These encouraging trends have led to an increase in confidence among households.
The European Commission’s consumer confidence indicator has risen to its highest level since 2000. This is already encouraging consumers to save less and spend more, with retail sales rising robustly for the third consecutive quarter in Q4 2013. These factors suggest that, after falling by an estimated 0.8% in 2013, consumer spending will increase by 1.1% this year and by 1.3% in 2015.