The Central Bank has upgraded its growth projections for the Irish economy, suggesting recovery is taking hold at a stronger rate than previously signalled.
In its latest quarterly bulletin, the bank said it expected the economy to grow by 2.5 per cent in GDP terms this year, which is 0.5 per cent higher than it previously forecast, and by 3.3 per cent in 2015.
Its revised outlook reflects recent National Accounts data, which put the level of GDP growth in the first quarter at a better-than-expected 2.7 per cent.
The authority noted that exports had rebounded well since late 2013, which suggested “the pronounced impact” of the so-called pharmaceutical patent cliff may be easing.
Gross National Product (GNP), which strips out the profit flows of multinationals, is expected to grow by 2.8 per cent this year, and by 2.7 per cent in 2015.
“This is consistent with the signals that have been emerging from a broad range of other indicators, particularly employment data, which have been pointing to a gradually strengthening recovery in economic activity for some time now,” the bank said.
“The 2015 growth projections are based on consensus assumptions from the main international institutions. Uncertainty attaches to these forecasts, however, and they remain sensitive to developments in the international and European economy.”
In its report, the Central Bank noted that unemployment had come down from a peak of more than 15 per cent to just below 12 per cent in about two years.
It predicted this trend would continue with the country’s jobless rate falling to 11.4 per cent this year and to about 10.5 per cent in 2015.
The increasing number of people at work combined with an increased level of investment by companies would further stabilise domestic demand this year, it sid.
However, the bank warned that consumer spending was likely to remain weak as high levels of personal debt and new taxes still exerted a downward pressure on disposable income.
“Despite strong employment growth in 2013, disposable income growth has been modest reflecting limited growth in compensation per head and the impact of fiscal consolidation on personal taxes and transfers,” it said.
The Central Bank appeared to give a tentative green light to the Government’s plan for a budgetary adjustment of something less than €2 billion.
“The exchequer data have been relatively positive for the first half of the year, we’ve seen revenue grow well ahead of target and expenditure has remained on track, “ the bank’s head of economic analysis John Flynn said.
“To continue to signal Ireland’s determination to consolidate the public finances and to maintain market confidence, it’s important that the budgetary term meet the agreed commitments.”
The priority for 2015 remains to reduce the deficit to GDP ratio to below 3 per cent, he said, without advising that the Government should stick to its previously promised adjustment of €2 billion.
