Goodbody increases growth forecast to 5.8 per cent

Goodbody Stockbrokers has increased its forecast for growth in GNP for 1999 by 0.3 of a percentage point. In its summer review it now predicts growth of 5.8 per cent.

The increase in the prediction is driven by Government current spending, which it says is set to increase by 10 per cent.

While this is in line with Government targets, it is "somewhat excessive" given the strength of domestic demand, according to the review. The stockbrokers add that buoyant revenue has more than accommodated the growth.

"Ireland is safely on course to be the best performing economy in the EU once again in 1999," according to the review. It points out that GNP increased by 8.1 per cent last year and has increased by 44.9 per cent since 1993.

Activity last year was "once again very broadly-based with all key sectors reporting substantial advances. The hierarchy of domestic demand, with investment making the most impressive contribution, is reassuring.

The quantum leap in this particular category should support productivity growth and in so doing act somewhat as a restraint on price pressures going forward."

The review has not changed the position outlined in earlier quarterlies in relation to inflation, which it forecasts will stand at 1.7 per cent this year and average 2.2 per cent in 2000.

"The domestic consumer will play the lead role in growth this year and we are forecasting that the real increase in activity will top the 1998 result by a decent margin. This forecast is driven by the EMU-influenced loosening of monetary policy which has seen official Irish interest rates tumbling from 6.19 per cent to 2.5 per cent over the course of the last 9 months."

On house prices the review notes a moderation in price inflation in the early months of this year. This development supports the view that the EMU-driven fall in interest rates was factored into the decision-making processes of property buyers before the launch of the single currency.

The stockbrokers expect house price inflation to continue to moderate, though annual growth should remain "above 20 per cent as the year progresses".