Davy doubles projection for Irish economic growth to 10% this year

Ireland's gross domestic product (GDP) is forecast to grow by 10 per cent this year, according to Davy, which has more than doubled its projection.

“We have revised up our forecast for Irish GDP growth to 10 per cent in 2021 versus 4.8 per cent previously,” the group said on Monday.

The upward revision was mainly put down to the buoyant export and multinational sectors, but also because the indigenous economy is “performing better than expected”.

“The contraction in early 2021 was shallower than we feared, and a clear rapid bounce-back has taken place in the third quarter as Ireland’s successful Covid-19 vaccination programme has allowed business restrictions to be lifted, with further easing to come in the second half of the year,” said Conall MacCoille, chief economist at Davy.

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On the housing front, the broker said it expected property prices to rise by an average of 8 per cent this year, up from 2.2 per cent last year.

However, it noted that the Government’s new shared equity loan scheme could pose an upside risk to the forecast, meaning the growth in property values could be even stronger.

The broker said the export and multinational sectors “remain impervious” to any Covid-19 related disruption.

However, a “sharp bounce-back” is now also underway in the indigenous economy following relaxed Covid-19 restrictions and good progress with vaccinations.

“Hence, we have revised up our forecast for indigenous sector output growth to 5 per cent in 2021 versus 2.7 per cent previously, with activity returning to pre-pandemic levels by early 2022,” Mr MacCoille said.

Vaccination

Ireland’s vaccination programme has now surpassed that of the UK, with a higher proportion of the total population fully vaccinated or having received their first dose and with remaining restrictions soon to be lifted.

Card spending data and jobless claims point to an “exceptionally sharp” rebound, with Ireland’s PMI surveys now at their highest level on record.

“We are forecasting an exceptionally strong rebound in consumer spending, up 6.5 per cent in the second quarter, up 5.5 per cent in the third, and close to pre-pandemic levels by the final quarter,” the Davy report said.

It added that the absence of planned tax rises in October’s budget would support consumer spending into 2022.

House prices have been buoyed by a number of Covid-related factors, including increased savings and a disruption to supply.

“We expect Irish residential property price inflation to equal 8 per cent in 2021 and 3.5 per cent in 2022,” it said.

“Although the housing market has tightened, we still see mortgage lending of €10 billion in 2021 and €11.2 billion in 2022, up from €8.4 billion in 2020.”

Core investment spending should rebound after a 1.5 per cent contraction last year, up 4 per cent in 2021. Davy forecast house completions would equal 22,000 in 2021 and 26,000 in 2022.