Ulster Bank has upgraded its forecast for Irish economic growth by more than one percentage point and expects gross domestic product to increase by 3.1 per cent in 2014.

In an economic outlook published today, the bank said it believes the recovery is becoming more broad-based and this year will be the first since 2007 that exports, consumer spending and investment will all grow.

It also said the recovery in international growth, especially in our major markets in the US and the UK, supports the outlook for Irish exports.

The recovery in the labour market is a key barometer of a better domestic economy and it expects a further fall in unemployment, to 11.5 per cent this year and 10.4 next year. It was 14.7 per cent in 2014.

Following the better-than-expected 2.4 per cent increase in employment last year, the bank is predicting “further healthy increases of around 2 per cent”.

While private and public sector debt levels carry lingering downside risks, the near-term risk skew looks more balanced, the bank said. The downside risks come from the potential for further disappointment in the euro zone recovery and from international geopolitical tensions, but recent export momentum has been impressive.

Consumer spending

The bank said trends in consumer spending have been disappointing. They fell 0.8 per cent in 2013 but the bank expects a return to positive growth of more than 1 per cent this year, and a further acceleration, to 2 per cent, next year.

Ulster Bank said it is taking encouragement from full-time employment, where annual growth has been above 3 per cent for the past three quarters.

Following last year’s 2.4 per cent fall in investment in home building, non-residential construction and core business capital spending, the bank said trends point towards a reversal of last year’s direction. It expects growth of 8 to 9 per cent this year and next year.

It said the improvement in residential activity is welcome, and the increased supply will help abate price pressures, particularly in the Dublin region.

The strengthening will also benefit the public finances, close to €1 billion, or 0.5 per cent of gross domestic product, ahead of expectations at the end of the first half.

Tax cuts urged

Meanwhile Retail Ireland has called for tax cuts that would give money back to consumers and boost spending and jobs in the retail sector. With sales of big ticket items such as cars and furniture on the up, and consumer sentiment at a seven-year high, “the Government now has the chance to secure the retail recovery”.