OECD upgrades Irish GDP forecasts for 2015/2016

Irish economy to expand by 5.6% in 2015 and 4.1% in 2016

In its review of Ireland, the OECD said on Monday that the Irish economy is projected to continue its strong expansion in the next two years.

In its review of Ireland, the OECD said on Monday that the Irish economy is projected to continue its strong expansion in the next two years.

 

The OECD increased its growth forecast for Ireland on Monday, noting that the economy will continue its strong expansion in the next two years, as it revised its GDP growth figure upwards from the 5 per cent it predicted in September, to 5.6 per cent. It also raised its forecast for 2016 up from 4 per cent to 4.1 per cent.

Last week the European Commission said that Ireland’s economy is set to grow by 6 per cent this year, the fastest rate in the European Union.

Globally, the OECD trimmed its global economic forecasts for the second time in three months as slower growth in emerging markets spilled over into countries such as Germany and Japan.

World output will expand 2.9 per cent in 2015 and 3.3 per cent in 2016, down from the 3 per cent and 3.6 per cent predicted in September, the Organization for Economic Cooperation and Development said in a semi-annual report published Monday.

“Global growth prospects have clouded this year,” the Paris-based organization said. “The outlook for emerging-market economies is a key source of global uncertainty at present.”

With Russia and Brazil in recession and China poised to deliver its weakest expansion in more than two decades, the economies that powered world growth in recent years are now slowing it down. Developed economies are feeling the brunt in the form of reduced demand for both commodities and manufactured goods.

Ireland

In its review of Ireland, the OECD said that the Irish economy is projected to continue its strong expansion in the next two years. Exports will rise in line with increasing demand in its trading partners, while business investment should remain “robust” the OECD said, thanks to rising profitability and favourable financing conditions.

“Growth will provide momentum to job creation and reduce the still high rate of unemployment, thereby spreading the fruits of the recovery more widely. Household consumption will be supported by labour earnings growth.”

And, the OECD noted that fiscal policy is expected to exert a “smaller drag” on activity than in past years, while the government remains on track towards its medium-term goal of balancing the budget.

“Fiscal windfall gains from strong economic growth and low interest costs should be used primarily for more rapid reduction of public debt,” the OECD said, noting that the fiscal package of €1.5 billion in 2016 (0.7% of GDP) “should prioritise getting more people back into work by revamping the tax and benefit system and enhancing activation policy”.

China, Russia

The OECD barely changed its forecasts for Chinese output, pegging growth at 6.8 per cent this year and 6.5 per cent in 2016. Yet Brazil’s economy is now seen shrinking 3.1 per cent this year and 1.2 per cent next, compared with contractions of 2.8 per cent and 0.7 per cent predicted in September. Russian gross domestic product is on track to drop 4 per cent in 2015 and 0.4 per cent next year, according to the report. Since the OECD didn’t give an estimate for Russia in September, that compares with a June prediction for a contraction of 3.1 per cent in 2015 and expansion of 0.8 per cent in 2016. For emerging markets, “challenges have increased,” the OECD said. Should their situation deteriorate, “growth would also be hit in the euro area, as well as Japan.”

Japanese GDP will grow 0.6 per cent this year and 1 per cent next, according to the report. While the 2015 forecast is unchanged, the 2016 one has been cut from 1.2 per cent. “The outlook for Japan remains softer than in other advanced economies, despite an anticipated upturn in real wage growth,” the OECD said. “This reflects a larger drag exerted by weak external demand, especially in Asia, and strong fiscal headwinds.”

Refugee crisis

The euro area’s expansion is now seen at 1.5 per cent in 2015 and 1.8 per cent in 2016, a reduction by 0.1 percentage point for each year. In terms of the economy, Europe’s immigration crisis represents a much needed potential boost, the OECD said. It estimates that the influx of refugees may add between 0.1 and 0.2 points to growth in 2016 and 2017 thanks to extra government spending. “Asylum seekers need not impose an unmanageable economic burden,” the OECD said. “If the refugees who stay are rapidly integrated into European society, they are likely to benefit the host countries.” The US expansion remains on track, with the OECD predicting growth of 2.4 per cent this year and 2.5 per cent in 2016. UK GDP is seen rising 2.4 per cent in both years, little changed from September.

In the US, “output remains on a solid growth trajectory, propelled by household demand,” the OECD said. “Monetary policy remains very accommodative, which is consistent with stubbornly below-target inflation, subdued wage pressures and hints of downward pressure on inflation expectations.” The OECD also offered its first glimpse of 2017, predicting a global expansion of 3.6 percent. It sees growth of 2.4 per cent in the U.S., 1.9 per cent in the euro area and 6.2 per cent in China.

Bloomberg