Economic growth is likely to reach 1.8 per cent this year, a forecast which is more optimistic than EU and Government predictions, but the expansion is unlikely to tempt consumers to begin spending again and will have little initial impact on unemployment.

In its latest report, independent body, the Economic and Social Research Institute (ESRI), says it believes the economy stabilised last year and could grow by 1.8 per cent this year and by 2.7 per cent in 2014.

Those forecasts are ahead of the most recent predictions for the Republic’s economy from the European Commission, which recently estimated that growth would reach 1.1 per cent this year and accelerate to 2.2 per cent in 2014.

The ESRI’s figures are also more optimistic than those produced by the Government, which last month projected that gross domestic product (GDP), the widest measure of wealth created by an individual country, would expand by 1.3 per cent this year and 2.4 per cent in 2014.

However, the ESRI’s Quarterly Economic Commentary, released today, warns unemployment will remain high despite the growth, while households will either save any spare money or use it to pay off debt instead of spending it.

The report’s authors, David Duffy and Kevin Timoney, warn that unemployment will fall only gradually. They predict 32,000 people will emigrate this year and a further 22,000 will leave in 2014.

The ESRI’s figures show that 316,000 people – 14.7 per cent of the labour force – were out of work in 2012.

The institute expects this to fall to 305,000 this year and to 298,000 in 2014, bringing the jobless rate down to just under 14 per cent from its current level of 14.7 per cent.

The number of people at work in the Republic will increase to 1.849 million in 2014 from 1.842 million this year.

Mr Duffy and Mr Timoney say that the improvement is unlikely to spark a significant increase in consumers spending, a key part of any recovery.

Uncertainty
"Although it now seems that there will be some increase in earnings over the next two years, uncertainty regarding the economic outlook and the continued high level of unemployment is likely to result in households continuing to save for precautionary reasons," they say, adding that consumers will continue to try to pay off debts.

Consumers are expected to save up to €5 billion from after-tax earnings of €87.8 billion this year and set aside €5.7 billion from earnings of €89.7 billion in 2014.

The ESRI’s forecasts are based on the assumption that the economies to which the Republic exports goods and services will either move out of recession or grow. The institute predicts that the US, which the report’s authors say has made a good start to the year, will grow by 2 per cent this year and 3 per cent in 2014.

Stabilise
The institute believes the recession in Europe will stabilise in 2013 before expanding by 1.1 per cent next year.

A number of independent economists questioned this following the publication of figures yesterday showing the EU remains in recession.

According to official figures released by the European Union's statistic agency, Eurostat, GDP in the euro zone fell by 0.2 per cent, a weaker performance than had been expected.