A strong export performance can continue to maintain Irish economic growth well above the EU average this year, according to the latest outlook from Bank of Ireland Treasury. The projected upturn in European growth will boost exports this year, according to Bank of Ireland's economist Dr Dan McLaughlin, with the multinational sector set to show the strongest growth.
In forecasts that are more bullish than those made by many other economists, Dr McLaughlin is predicting gross domestic product growth of 6.5 per cent this year, unchanged from his estimate of 2002 growth. In terms of gross national product - which adjusts for multinational profit repatriations, he expects growth to be a fairly robust 4 per cent this year, following an estimated 2 per cent last year.
This would be "not a startling result by Celtic Tiger standards but very strong in relative terms, given our expectation of only 1.1 per cent growth in the euro zone and 2.6 per cent in the UK," the outlook says. Bank of Ireland's GNP forecasts are well ahead of the Department of Finance, which expects 2.2 per cent growth this year and just slightly ahead of the Central Bank's 3.5 per cent prediction.
International recovery is being held back by fear of war in Iraq, but Dr McLaughlin's forecasts assume a resolution to this in the next few months - either through military means or otherwise.
The resulting recovery in global growth will boost Irish exports and growth, he believes. However, domestic demand will remain subdued, with consumer spending rising by 2.75 per cent and Government spending decelerating. Business investment should recover, led by an upturn in foreign direct investment. Inflation is forecast to average 4.3 per cent this year from 4.6 per cent in 2002.
Looking at the currency markets, Dr McLaughlin says it is difficult to see a bounce in the value of the US dollar until the Iraq situation is clarified. Consequently he is forecasting that the euro will rise to $1.10 in the short term, but that later in the year the US currency will recovery strongly, meaning that the euro and the dollar will be around parity by September.
