Davy Stockbrokers has upgraded its growth forecast for the Irish economy, one of the only forecasters to do so, despite the negative impact of Russia's invasion of Ukraine and higher energy prices.
The company said it expected the economy to grow by 8.2 per cent in gross domestic product (GDP) terms this year, up from a previous forecast of 7.6 per cent, and by 5.8 per cent in 2023.
The upward revision reflected what it described as an “erratic” 5.4 per cent drop in output across the multinational sector in the final quarter of 2021, which is expected to be reversed in the first quarter of this year.
It noted that industrial production, which is dominated by pharmaceutical and medtech firms here, was up 15 per cent in the three months to February.
The Department of Finance, the Central Bank and the Economic and Social Research Institute (ESRI) have all downgraded their growth forecasts for the economy on the back of the Ukraine crisis and the energy price shock.
In its report, Davy warned that it expected “a soft patch for consumer spending” in mid-2022 as inflation accelerates to a peak of 8 per cent in June.
This would lead to a slightly weaker recovery for the domestic economy, which is forecast to grow by 6 per cent rather than 6.7 per cent in 2022, it said.
Consumer spending is now expected to grow by 5.3 per cent this year, versus 7.3 per cent previously, while still benefitting from the tailwind of eased Covid-19 restrictions.
"The high frequency data on the Irish economy point to a strong rebound in activity in early 2022 as Covid-19 restrictions were eased from mid-January," Davy chief economist Conall Mac Coille said.
“This isn’t surprising as output in several sectors in Q4 2021 was still well below pre-pandemic levels, with scope to recover; construction (-2 per cent), distribution, transport, hospitality (-8 per cent), finance (7 per cent), professional, admin and support (-3 per cent) and arts/entertainment (-5 per cent),” he said.
“The more important point is that Ireland’s defensive export sector concentrated in pharma, medtech and technology should continue to perform despite the uncertainty of events in Ukraine, just as it did during the pandemic,” Mr Mac Coille said.
In its report, Davy said it expected property price inflation – currently at 15.3 per cent – to slow from double-digit levels and to average about 7 per cent this year. One early sign of this was a fall in the median premium over the asking price in the first quarter.
In terms of house completions, it noted that data on housing commencements had been stronger in recent months despite higher input cost inflation but that overall planning permissions remained relatively low. As a result, it scaled back its forecasts for completions to 26,500 units this year, rising to 33,000 next year.