The International Monetary Fund delivered a modest upgrade in its growth forecast for Ireland, saying the domestic economy will expand 3.9 per cent this year instead of the 3.5 per cent projection it made only three weeks ago.
The new assessment was set out in the fund's latest World Economic Outlook report, in which it said growth in advanced countries would strengthen this year relative to 2014 but weaken in emerging and developing economies. Global growth is forecast at 3.5 per cent in 2015 and 3.8 per cent in 2016, broadly the same as last year.
The IMF said recent exchange rate shifts – among them the weakening value of the euro against the dollar – should help the world economy and boost Europe in particular as well as Japan. “Large movements in relative prices, whether exchange rates or the price of oil, create winners and losers,” said Olivier Blanchard, IMF economic counsellor.
Euro zone recovery
After weakness in the euro zone in 2014, the IMF said growth in the area was picking up, supported by lower oil prices, low interest rates, a weaker euro and bond market interventions by the European Central Bank.
“A number of complex forces are shaping the prospects around the world. Legacies of both the financial and the euro area crises – weak banks and high levels of public, corporate and household debt – are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process,” Mr Blanchard said.
The IMF’s revised Irish forecast figure is directly in line with the Government’s forecast in the October budget but way behind a bullish assessment from business lobby Ibec, which has said gross domestic product will grow this year by 5.4 per cent.
It is recognised in political circles that Minister for Finance Michael Noonan has scope to increase the growth forecast in the spring economic statement on April 28th. The Government is reluctant to do this as it is facing a clamour for recovery dividends in the form of public pay restoration and other measures.
Having said in March that Ireland's economy would expand 3 per cent in 2016, the IMF believes GDP next year will grow by 3.3 per cent. The World Economic Outlook report said Ireland, Germany and Spain were exceptions to the weak investment climate in the euro zone. "Beyond 2015, euro area growth is expected to hover around 1½ per cent, reflecting both demand- and supply-side constraints."
