Consumers will drive economic growth up to 6 per cent this year and next, on the back of "quite a dramatic spending spree", Bank of Ireland chief economist, Dr Dan McLaughlin, said yesterday.
Dr McLaughlin expects the consumer to be the main driver for the economy over the medium term, taking over from construction. "We're about to see the unfolding of a consumer boom," he said. He believes the beginnings of this are already evident in figures for the first two months of the year showing a surge in retail spending.
Consumer spending provides about half the economy's growth in any year, so an increase in the measure could be expected to have much more impact on growth than rises in other areas.
Bank of Ireland also expects that the differential between gross national product (GNP) and gross domestic product (GDP) will be eliminated in 2005.
The bank has pencilled in 6 per cent growth in both GDP and GNP for this year, accelerating to 6.2 per cent for both in 2006.
The gap between the two measures will close because consumer spending, rather than the profits of multinational companies, will be the driver of growth, Dr McLaughlin said.
GNP excludes multinational profits and has been significantly lower than GDP for most of the current period of economic prosperity. It overtook GDP last year for the first time since 2000.
Dr McLaughlin has pencilled in a 5.5 per cent increase in consumer spending for this year, followed by another 7 per cent rise in 2006. In 2007, when all €15 billion of funds tied up in special savings incentive accounts (SSIAs) has been released, spending will boom by 10 per cent, according to Dr McLaughlin. Low interest rates combined with strong consumer confidence, full employment and growing household income will underline the trend, he said.
The public finances are also forecast to post healthy growth, with Bank of Ireland expecting tax receipts this year to exceed Department of Finance expectations by €1.6 billion, before any boost from special investigations conducted by the Revenue Commissioners. In this way, a forecast general government deficit of €2 billion will become a €1.2 billion surplus, according to the analysis.
Dr McLaughlin believes that the Republic has entered a "post-industrial age" where growth is driven more by domestic services than exports.
The Republic is currently at a stage of virtually full employment, making it difficult to fuel substantial expansion without immigration.
