Ulster Bank has revised downward its forecast for economic growth in Ireland, saying the economy will grow more slowly this year than previously predicted.

In its latest quarterly economic update, the bank said it expected gross domestic product to grow by 0.3 per cent this year, instead of a previously forecast 1.3 per cent rise.

Ulster Bank chief economist Simon Barry said incoming gross national product data has been "heavily distorted" by profits accruing to redomiciled plcs – companies which hold large investments overseas but which have established a legal presence in Ireland.

Profit inflows
"Recent figures show large profit inflows but limited distributed outflows, thereby boosting recorded GNP. However, the limited interaction these companies have with the domestic economy means that GNP is not a particularly useful gauge of the economy . . ."

However, he said weakness in GDP growth should not detract from evidence of emerging domestic recovery, with improved trends in employment, property and underlying investment offering a more encouraging read on the economy.

The bank expects annual GDP growth to resume a path of reacceleration next year, anticipating an expansion of 2.2 per cent, helped by an expected improvement in both domestic and external demand.

The revised forecast also anticipates annual employment growth of about 1 per cent this year and next, which will help the unemployment rate to continue to fall, to an average of 13.6 per cent and 13.1 per cent in 2013 and 2014, from 14.7 per cent in 2012.

Mr Barry said employment was rising, leading to a more stable jobs market, which in turn was having a positive impact on residential and commercial property prices. He said non-aircraft machinery and equipment and non-residential construction have shown improvement, benefiting from foreign investment.

“Even the beleaguered homebuilding sector is finally showing signs of stabilising, with house completions avoiding an annual decline in Q2 of this year for the first time since late 2006.”

Real GDP
Ulster Bank said real GDP fell from an encouraging 2.2 per cent pace of growth in 2011 to a "paltry" 0.2 per cent last year, with figures indicating this weakness was carried over into the early part of this year.

The bank attributed the slower pace of growth to a “major weakening” in some of Ireland’s trading partners, notably the euro zone, and patent expiries in the pharma sector.