GDP increase will slow to 7.6% in 2022 after 15.5% this year, Davy predicts

Irish people spent almost €260 million a day on their credit and debit cards last month, the largest amount since Covid struck in March 2020.

Conal MacCoille, chief economist with stockbrokers Davy, predicts that Irish gross domestic product – a measure of all the wealth the Republic generates – will increase by 7.6 per cent in 2022 after growing 15.5 per cent this year.

Davy’s Irish Economic Forecast, published on Friday, says short-term indicators show recovery from the impact of Government Covid-19 curbs continuing into the final three months of this year.

Central Bank figures published in the report show that "average daily credit/debit card spending rose to €256 million in November, its highest level during the pandemic".

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Mr MacCoille notes that purchasing manager indices for manufacturing and services both rose in November, indicating a sustained recovery in the final quarter of the year, rather than the slowdown signalled in Europe.

However, he adds that global supply-chain bottlenecks and workers’ demands for pay increases are contributing to record inflation, “which could restrain the recovery”.

Inflation will push the prices of goods and services up by an overall average of 3.8 per cent in 2022, but the Davy economist predicts this will slow to 2.4 per cent by the year’s end.

House prices

He expects households will save 15 per cent of their incomes in 2022, against 22 per cent this year and 26 per cent in 2020, prompting a 7.3 per cent rise in consumer spending.

“This means the level of consumer spending will be 4 per cent above pre-pandemic levels by end-2022,” says Mr MacCoille.

House price rises will slow in 2022 after peaking this year, according to Mr MacCoille’s report.

Davy has increased its estimate of official residential property price inflation for 2021 to 11 per cent from 10 per cent originally.

The average mortgage approved by Irish banks had risen 8 per cent to €269,000 in the year to November.

Mr MacCoille believes that house prices will rise by 4.5 per cent in 2022. He predicts that banks will loan €10.4 billion in total to homebuyers this year and €12 billion in 2022.

Davy estimates that fewer than one in 20 workers will be out of a job next year, despite current labour statistics lacking clarity, as some of those on pandemic unemployment payments counted themselves as employed.

Pup claims

Pandemic unemployment claims had halved to 53,000 by the beginning of this month, indicating continued recovery.

Workers and businesses paid €62.3 billion in taxes in the first 11 months of this year, 13.5 per cent more than during the same period in 2019, the year before the pandemic hit.

Mr MacCoille says this increase is across the board, from company profits to income tax, VAT and capital gains, “reflecting the strong rebound in domestic activity”.

He forecasts that the Government deficit – the difference between what it collects in taxes and spends – will be €5.8 billion, or 1.3 per cent of gross domestic product. This could fall to €2.3 billion in 2022, Mr MacCoille adds.

Those low deficits will allow the Government maintain cash supports for businesses hit by fresh Covid-19 restrictions announced over the last week to combat the new Omicron strain.

Mr MacCoille says that overall the Republic’s economy looks exceptionally strong with multinational employers “seemingly impervious” to the impact of Government Covid restraints and contributing to buoyant tax revenues.