Economy forecast to grow by stronger-than-expected 4.7% this year

Bank of Ireland has raised its growth forecast for the Irish economy this year to 4.7 per cent, more than one percentage point above the Government's official projection, suggesting further job gains and rising incomes would underpin "solid consumer spending".

The Department of Finance predicted growth for 2018 of 3.5 per cent at the time of the last budget, but this is expected to be revised up in April when the department publishes its latest Stability Programme Update.

Bank of Ireland's forecast, contained in its latest economic outlook, would put Ireland at the top end of the euro zone growth league table for a fifth year running, and comes on the back of an estimated jump in gross domestic product (GDP) last year of 7 per cent.

The bank said underlying investment in the Republic was also being boosted by a rise in construction activity, while exports were benefitting from the improving global economy.

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However, it cautioned that its positive outlook was set against a backdrop of Brexit uncertainty, changes to the international tax code and volatile currency markets, all of which had the potential to dampen growth here.

“As always there are risks to the outlook, not least Brexit uncertainty,” Bank of Ireland chief economist Loretta O’Sullivan said. “This is the big issue for the UK, and is also a cloud on the horizon for Ireland, along with uncertainties related to the external policy environment and exchange rates.

Back on its feet

“These aside, it is clear that the Irish economy is back on its feet with a range of indicators above their previous peak and others not far off,” she said.

In its report the bank said retail sales here had risen by 4.3 per cent last year and that, while new car sales started this year on a softer note, used imports were continuing on a robust trajectory courtesy of a weaker sterling.

On the labour market front it noted that employment growth averaged 2.8 per cent year-on-year for the first three quarters of last year, taking the number at work to 2.2 million – just below its pre-crash peak – with the unemployment rate remaining on “a firm downward path”.

Further job gains and rising incomes are expected to underpin consumer spending increases of 3 per cent this year and next, while the unemployment rate is projected to fall to around 5 per cent by the end of 2019, a rate which is equated with full employment in the Irish economy.

More sombre

Its outlook for the UK economy was decidedly more sombre, with retail sales softening and household confidence at a low ebb.

The bank said at 3 per cent in January, inflation was still well above the Bank of England’s target, and this would “weigh on households’ purchasing power in the period ahead, notwithstanding ongoing job gains”.

It said in reflecting this consumer spending growth in the UK is expected to be relatively weak at 1 per cent this year, and 1.3 per cent next year.