B of I economist predicts 5% growth, steady inflation

The Irish economy will grow by 5 per cent this year and inflation will remain at 2.5 per cent for the foreseable future, according to the Bank of Ireland chief economist Dan McLaughlin.

Dr McLaughlin indicated today that domestic demand - consumer, Government and business sector spending - would drive growth to 5 per cent this year, an increase of 0.5 per cent on last year's figure.

Dr McLaughlin said: "Ireland's manufacturing-led growth has given way to a services and construction based expansion with domestic demand, particularly consumer spending, driving growth.

"This consumer spending, allied with a strong advance in capital investment and robust government spending, will generate a 6 per cent rise in domestic demand, an acceleration from the 4.7 per cent increase recorded last year and the 4 per cent rise in 2003.

"Economic growth as a whole, however, is likely to rise by 5 per cent in 2005, dampened by weak export growth, in turn reflecting the malaise affecting the manufacturing sector."

In contrast to recent predictions on the growth of inflation in the Irish economy, Dr McLaughlin said: "Despite the strength of consumer spending inflation has remained around the EU norm.

"Prices are stagnant or falling in the high street, implying that competition has been enhanced with the influx of foreign retailers. This will continue to act as a disinflationary force, keeping inflation at 2.5 per cent this year and next."

Dr McLaughlin also predicted that domestic-led growth would continue to drive the economy in 2006.

"The pattern of domestic led growth, with the consumer to the fore, is likely to be replicated in 2006. Consumer spending will be augmented by the release of SSIA funds, although the majority will not mature until early 2007.

"Nevertheless, the impact will still be significant, underpinning a 7.0 per cent rise in personal consumption. This will help in propelling growth back up to its 6 per cent potential, assuming exports continue to recover," Dr McLaughlin said.