Davy upgrades Irish economic growth forecast on back of resilient exports

Brokerage warns Ireland’s recovery may be delayed due to Covid-19 restrictions

Davy’s assessment ‘reflects exceptional export performance, driven by the pharmaceutical and information and communications technology sectors’. File photograph:  Paul Faith/AFP via Getty

Davy’s assessment ‘reflects exceptional export performance, driven by the pharmaceutical and information and communications technology sectors’. File photograph: Paul Faith/AFP via Getty

 

Davy stockbrokers has upgraded its growth forecast for the Irish economy on the back of better-than-expected multinational exports.

However, it warned that fresh Covid-19 restrictions would depress activity and delay recovery in the first half of 2021.

In its latest assessment of the economy, the firm revised up its growth forecast for this year to 4.8 per cent, from a previous forecast of 3.8 per cent, increasing to 5.5 per cent in 2022.

“This reflects exceptional export performance, driven by the pharmaceutical and information and communications technology sectors,” Davy said.

The brokerage said it expects the State’s multinational sector to have grown by 20 per cent last year – the official figures have not yet been released – and to grow by a further 6 per cent this year.

Multinational sector

The strength of the State’s multinational sector, which is dominated by pharma and IT firms – both of which saw an increase in demand during the pandemic – has been one of the most striking features of the current crisis.

In contrast, the indigenous sector, which has been hit hard by restrictions, is likely to have seen output contract by 10 per cent in 2020, Davy said, and would only expand by a sluggish 2.7 per cent in 2021.

It noted that fresh Covid-19 business and travel restrictions were likely to disrupt domestic spending in the first half of 2021.

Davy said it expected an incomplete recovery this year in consumer spending and employment, with the unemployment rate remaining as high as 12 per cent even by end of 2021.

Budget deficit

It forecast the Government’s budget deficit would fall to €18 billion – 4.6 per cent of gross domestic product in 2021, down from €19 billion in 2020 – which it noted was still significantly better than most of the Republic’s peer countries. Davy also noted the resilience of the housing market, predicting house prices would rise by a further 3 per cent in 2021.

“Ireland’s economy demonstrated that activity and spending can bounce back once restrictions are lifted, especially with savings elevated,” said Conall Mac Coille, Davy’s chief economist.

“Our forecasts could be too conservative, assuming output in hard-hit sectors (construction, retail, hospitality) remains below pre-Covid-19 levels by end-2022,” he said.

“One risk here is that financial stress and company liquidations delay any rebound, although the initial signs from loan performance have been encouraging,” he said.

“Crucially, our view that a no-deal Brexit would be avoided by the EU and UK has been borne out; in time, this may encourage investment among SMEs [small and medium enterprises] after over a decade of balance sheet repair,” he added.