Ireland

B of I expects sharp inflation fall in 2008

Bank of Ireland said today that the housing market slowdown is not as severe as is being reported and that inflation is expected…

Thu Jul 12 2007 - 01:00

Bank of Ireland said today that the housing market slowdown is not as severe as is being reported and that inflation is expected to fall sharply next year.

GDP growth continued to accelerate in quarter one 2007 particularly in relation to exports
Dr Dan McLaughlin, B of I chief economist

Its Quarterly Economic Outlook, issued this morning, the bank said it expects inflation to fall from an average of 4.8 per cent this year to just 2.7 per cent in 2008.

Data released by the Central Statistics Office this morning showed that annual inflation last month fell from 5 per cent to 4.9 per cent.

In a positive assessment of the economy over the next two years, the Central Bank also said it expects growth of 5 per cent this year and 4 per cent in 2008.

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The report comes a day after the Central Bank issued a similarly benign view on the state of economy yesterday, predicting a "soft landing" as the most likely result of the housing slowdown.

Bank of Ireland expects inflation to fall back sharply next year with interest rates peaking at 4.25 per cent, suggesting just one more rate increase from the Central Bank this year, mostly likely in the autumn.

The bank also said the slowdown in the housing market was being overstated and pointed out that house building in the first half of this year would be above the same period in 2006.

It adds that strong growth in non-residential construction will offset any downturn in residential construction. It is predicting a slightly stronger growth performance for the economy. "Our forecast of 6 per cent GDP for 2007 remains unchanged with 5 per cent forecast in 2008," the bank said.

It said first quarter GDP growth was 7.5 per cent surpassing the 5.4 per cent trend in the past five years.

B of I expects employment to rise by 3.5 per cent, resulting in 75,000 jobs created in 2007 and 60,000 in 2008. Average wages are forecast to rise by 5 per cent - which would keep workers pay growing marginally faster than inflation.

Dr Dan McLaughlin, chief economist with the bank, said: "Despite widespread commentary on slowdown in residential construction and a loss of national competitiveness, GDP growth continued to accelerate in quarter one 2007 particularly in relation to exports.

"We have not yet seen a notable SSIA impact on spending."