Davy cuts growth forecast for Irish economy and warns on home completions

Davy Stockbrokers has downgraded its growth forecast for the Irish economy, citing the negative impact of higher energy prices on consumer spending. The firm also warned that higher input costs in the construction sector would result in fewer-than-expected house completions next year.

In its latest quarterly outlook, the firm said it had revised down its forecast for how much gross domestic product (GDP) would grow by to 3.5 per cent in 2023 from nearly 6 per cent previously. The revision was largely a function of the shrinking outlook for consumer spending, which is now expected to grow by only 1.8 per cent in 2023 versus 4.9 per cent previously, “reflecting the hit to real incomes from energy prices and inflation”.

As well as the impact of higher energy costs, Davy said uncertainty surrounding the war in Ukraine and likely euro area and UK recessions had also clouded the outlook.

However, it said it expected Ireland’s export sector would still see robust growth, with exports expected to grow by 7 per cent, keeping Irish GDP growth in positive territory and well ahead of the consensus forecasts for the euro area (0.2 per cent) and UK (-0.3 per cent). Given Ireland’s export-led economy – exports rose 11 per cent despite huge declines in global trade – the country’s GDP growth regularly outstrips other nations.

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Davy also noted that Ireland’s public finances were “in rude health due to surging corporate tax revenues”. It projected a surplus of €4 billion this year (0.8 per cent of GDP) this year, growing to €9 billion (1.7 per cent of GDP) in 2023, absent of any further policy measures.

“The Irish Government may well end up adding further temporary support for Irish households and firms, following the €4 billion temporary measures announced for the winter in Budget 2023,” it said.

It said supply-chain disruption and elevated input costs were now also weighing on construction activity, “so we have revised down our forecast for housing completions to 27,000 in 2023″. It expects housing completions of 28,400 this year.

“The bigger picture though is that we see Ireland’s housing market as relatively resilient given enormous pent-up demand and leverage/income gearing constrained by the mortgage lending rules,” it said.