Another difficult year predicted

Davy forecasts put growth for Irish economy below that expected by the Government or the troika

Stockbroking firm, Davy’s predictions for the Republic’s economy for next year are a little more subdued than those of either the Government or the EU-IMF Troika.

At an end-of-year briefing yesterday, the company’s chief economist, Conall Mac Coille, predicted that gross domestic product (GDP), a measure of the wealth generated by the economy, including multi-nationals, would increase by 0.2 per cent this year and 0.9 per cent in 2013.

His forecast for next year is below that of the Department of Finance, which recently pitched it at 1.5 per cent, or the EU-IMF troika, responsible for the 2010 bailout of the Republic, which believes that it it will be 1.1 per cent.

In general terms, he believes that domestic demand in the Republic will shrink again next year.

Even though house prices have fallen by about 64 per cent from the peak, and affordability is back at levels similar to those of the 1990s, he suggests that residential property values could dip a bit further in 2013.

At a global level, Mac Coille’s colleagues, Robbie Kelleher and Brian O’Reilly, say that, in terms of the main trends, there will be little or no growth in the euro zone as a whole.

They argue that the developed world’s problems will leave it with a growth rate of just over 1 per cent, lagging emerging economies, where China will lead the way with an 8 per cent expansion.

On specific investment performance, Davy has singled out a number of stocks it believes have the potential to outperform next year. Head of research, Barry Dixon, says that these have a number of characteristics in common.

The first is an ability to grow revenues regardless of the general economic environment, either through a technology advantage, market strength or an exposure to higher growth markets.

The second feature is that the companies have strong balance sheets and the ability to generate cash that can be used to support activities likely to boost their value, including dividend payouts, acquisitions and share buy-backs.

The third is an ability to generate returns on capital above its cost and create long-term economic value, something for which investors are looking in the the current climate.

Associated British Foods

Dixon says that this is fundamentally a play on Primark, a brand already really familiar to Irish shoppers and throughout Europe.