Business group Ibec has revised upwards its economic forecasts for 2014, citing “impressive employment growth” and a rise in consumer spending as evidence that a recovery is gaining momentum.
The group says it now expects GDP, gross domestic product, to increase by 2.9 per cent this year, following a 0.3 per cent fall in 2013. “We strongly believe that the recent economic resurgence will be reflected in the official data in 2014,” it states in a quarterly economic outlook published today.
The recovery taking hold is balanced, the representative body adds, with private consumption joining investment growth in supporting the overall economy, both this year and next, and with consumer spending growing by 1.9 per cent, rather than by the 1.3 per cent rate in its previous forecast.
Stable oil prices
It cites the highest levels of consumer confidence since June 2007, as well as improvements in the labour market, as the factors that will propel spending this year. Stable oil prices and mortgage interest rates should help reduce pressures on the cost of living, it says.
“Ireland is on the way back,” according to Ibec head of policy and chief economist Fergal O’Brien. The “poor” GDP figure for last year does not reflect “the true strength of current health of the Irish economy” due to the disproportionate effect on exports of the so-called patent cliff in the pharmaceutical sector, Mr O’Brien says.
Ibec concludes that wage pressures and a fragile European recovery “remain a concern” and calls on the Government to reduce tax rates. “Our income tax rates, in particular, are too high,” it argues. “Irish consumers deserve a break.”
Gross national product (GNP), a measure of economic growth that excludes the profit flows of the multinational sector, will increase by 2.3 per cent this year, Ibec forecasts, having advanced 3.4 per cent in 2013.
Investment in the economy “remains at low levels”, but will grow by about 21.5 per cent this year, Ibec believes. This is up from its projection of 15.5 per cent in its previous quarterly forecast. Its new GDP forecast is slightly higher than the projection made in late December, while the GNP forecast is unchanged.
However, net exports will remain a drag on GDP this year, although to a lesser extent than in 2013, as the impact of the pharma patent cliff continues but starts to ease off.
The patent cliff – the name given to the expiry of several high-profile patents in the pharma sector – is estimated to have wiped almost €5 billion off the value of Irish exports last year, resulting in Ireland’s worst goods export performance for 10 years and contributing to the overall contraction in GDP.
Ibec painted a brighter picture on employment, suggesting there would be growth of 2 per cent in 2014, with about 50,000 new jobs created this year and a further 40,000 in 2015.
“Crucially, positive sentiment for employment growth now exists among both exporting and non-exporting companies,” it notes. However, “moderate” wage growth will be “focused on the more strongly performing sectors of the economy”.
The rate of unemployment will edge down to 10.9 per cent this year and to 9.6 per cent in 2015, it adds. Ibec's upbeat assessment of the labour market, following what it called "spectacular" private sector employment numbers, mirrors the verdict of the Central Bank, which has also forecast a surge in employment.
In a report published last week, the Central Bank suggested that GDP would grow by 2 per cent this year – a more modest forecast than that of Ibec. However, it offered a more positive forecast on GNP than the business group, pointing to possible growth of 2.7 per cent.