Economic growth will slow over the next 18 months, due primarily to the downturn in the housing market, Bank of Ireland said yesterday.
GDP growth will slow to 4 per cent in 2008, from 5.3 per cent this year, according to the bank's quarterly economic outlook.
"The Irish economy expanded rapidly in the first half of 2007. GDP grew at an annual 6.7 per cent, with final sales [GDP excluding stock-building] expanding by over 8 per cent," said Bank of Ireland group chief economist Dr Dan McLaughlin.
"This GDP performance is well above the 5.4 per cent growth trend established since 2000 but activity looks set to slow somewhat over the next 18 months, primarily reflecting a housing market correction.
"This will result in GDP growth of 4 per cent in 2008, following a 5.3 per cent average for this year as a whole, before a recovery in 2009, to 5 per cent."
Dr McLaughlin, one of the more bullish Irish economists, also forecast a rebound in the housing market in 2009.
"The supply response to the softening in house prices has been pronounced, with completions set to decline to 72,000 this year from over 88,000 in 2006, and to 58,000 in 2008.
"This is ultimately supportive of house prices. House building will not fall forever, and our expectation of a growth rebound in 2009 is partly due to a forecast upturn in completions in that year," he said.
Growth in consumer spending is also expected to slow in the coming year, but the slowdown is expected to be modest.
"Consumer spending, which is set to grow by 4.5 per cent in 2008 following a 6 per cent expansion in 2007, is in line with the growth in real household income, and highlights the absence of any pronounced SSIA impact on spending," said Dr McLaughlin.
"The corollary is that consumer outlays are unlikely to fall away sharply, and the more modest projection for personal consumption in 2008 reflects a slowdown in household income growth, to around 7 per cent from 9.5 per cent. This in turn largely reflects lower employment growth as net job creation may emerge at 43,000 against 72,000 in 2007."
Real incomes will also be supported by a sharp fall in headline inflation, which is forecast to average 2.7 per cent from 4.8 per cent in 2007.
"Discretionary spending may well be bolstered by ECB rate cuts - we anticipate two-quarter point reductions, starting in the second quarter of 2008," he said.
The Government's fiscal position remains strong, he said.
"Tax revenue is forecast to exceed day-to-day spending by €6.0 billion, which hardly suggests the need for revenue-raising measures."
