Economist predicts 6% growth in economy

The Irish economy will grow by 6 per cent this year thanks to increased consumer spending and a growth in exports, according to Bank of Ireland chief economist Dr Dan McLaughlin.

Growth in consumer spending and exports are predicted to result in an increase in growth levels from last year's 4.6 per cent to a 6 per cent margin for 2006, according to Dr McLaughlin, who unveiled the banks quarterly economic review in Dublin today.

The outlook records an increase in consumer spending in excess of 6 per cent and a further increase to the region of 8 per cent is expected in 2006, thanks in part to maturing SSIA funds.

"Household income is again likely to be the key driver, underpinned by employment growth of 4 per cent, and Ireland's relatively high savings ratio is likely to fall somewhat as the SSIA accounts begin to mature," he said.

Although the high savings ratio will provide some insulation to the economy from higher interest rates,

Dr McLaughlin sees "another 1 per cent increase by spring 2007, taking the repo rate to 3.5 per cent".

With an estimated tax income of €1.5 billion and an Exchequer surplus of €0.8bn euro, Dr McLaughlin said the Government would be in a position to deliver another expansionary budget for 2007.

"The resultant rise in mortgage costs will impact the CPI as will higher energy costs but we expect inflation to average 3.5 per cent. The combination of strong economic growth and rising property values will result in a €1.5 billion tax windfall for the authorities, leading to a €0.8 billion General Government Surplus, as opposed to the €1 billion deficit forecast in the Budget," he said.

"This will allow the Government to deliver another expansionary budget for 2007, which alongside a further SSIA impact will help to offset the impact of higher interest rates. Consequently, we see another 6 per cent expansion for GDP in 2007."