Outlook for 2016 remains positive

ESRI cites a sustained slowdown in China and Brexit as key concerns for Ireland

 

At 6.7 per cent of GDP, the Irish economy is forecast to grow in 2015 at its most rapid rate since 2005, according to the Economic and Social Research Institute (ESRI). Ireland is also Europe’s fastest-growing economy, greatly helped by a number of favourable developments: a weak euro; falling oil prices; and strong demand in key export markets, the US and the UK. These factors, in conjunction with improved cost competitiveness and increased domestic investment and consumption, have boosted growth.

Can the rapid pace of economic recovery be sustained in 2016? The ESRI, in its latest quarterly report, remains optimistic that it can, albeit with some caveats. It has forecast a 4.8 per cent rate of GDP growth next year, with unemployment dropping below 8 per cent by the end of 2016, and employment forecast to exceed two million within a few months. However, the institute has identified potential adverse developments in the global economy that could jeopardise its forecast.

The risk factors include a sustained slowdown in China which is a key concern, given the Chinese economy’s role in recent years as the engine of world growth. A major economic downturn there would weaken demand in Ireland’s main export markets and depress growth in the domestic economy. Another concern is a possible British exit (Brexit) from the European Union, following a referendum that may be held in June.

Last month an ESRI study of the implications of Brexit made for grim reading. The report suggested bilateral trade between Ireland and the UK could be reduced by 20 per cent or more should Britain vote to leave. A further potential threat to the ESRI’s ambitious growth forecast – though not one identified by it – arises closer to home. This takes the form of political uncertainty following the general election should a government with a stable parliamentary majority fail to be formed.

The ESRI has followed the Irish Fiscal Advisory Council’s lead and criticised the Government’s adoption of a pro-cyclical policy in Budget 2016, in adding €2.8 billion in tax and spending measures to boost the economy at a time of rapid growth.

The institute has also identified difficulties in the housing market, where it suggests balance between supply and demand – attainable by building 25,000 housing units each year – may not be reached before 2018. The Government is unlikely to meet the social housing targets it has set for the period 2015-2020.

The decision this week by the Federal Reserve (the US central bank) to raise short term interest rates for the first time in nine years has eased worries in financial markets and opened the way for further modest rate rises in the years ahead.

But whether this goal can be achieved without jeopardising the recovery of the American economy or destabilising developing economies, already in difficulty, remains the great global uncertainty.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.