NIB predicts 'rapid catch-up growth' for economy

THE ECONOMY here will resume growth next year and may enter a prolonged period of expansion, according to National Irish Bank.

In his latest quarterly commentary, the bank’s chief economist, Dr Ronnie O’Toole, said the economy would “move sideways” this year, with some sectors continuing to contract while others moved into the recovery phase.

He said next year the economy would “switch to a period of relatively rapid catch-up growth, with GDP increasing by 3.5 per cent”.

“Following its recession in the early 1990s, Finland enjoyed a prolonged period of high growth as the savings rate plummeted, unemployment fell and much of the slack in the economy got taken up,” Dr O’Toole said. “The same is likely in Ireland.”

While last year was challenging globally for attracting foreign direct investment, the reputational damage suffered by Ireland caused its performance to be below the average.

However, Dr O’Toole said Ireland was well positioned to take advantage of a global upturn when it came. “Ireland had lost a significant degree of price competitiveness in the first two years of the millennium; half of this has now been clawed back.”

He said cities would dominate the next five years of economic growth. “Policies such as the carbon tax and the curtailment of spending on public services, together with the sourcing of most new export jobs in cities, will act as drivers of urban growth.

“In contrast, the over-reliance of rural areas on construction jobs during the boom, together with the far greater overhang of houses compared with urban areas, is likely to act as an ongoing drag on recovery.”

He predicted that Dublin house prices would hit a bottom this year, although prices nationally would continue to fall. “Prices in Dublin started to fall earlier and have fallen further than in the rest of the country.” The premium on houses in Dublin over elsewhere had fallen from €240,000 at the height of the boom, to less than €100,000 as of late last year.