The Irish economy should sustain its impressive growth rate next year against a backdrop of low interest rates and healthy public finances, a leading stockbroker said today.
In its latest update on the economy, Davy stockbrokers expects GNP growth rates of 4.6 per cent this year and 4 per cent next year, a performance which would again put Ireland among the fastest growing developed countries.
Davy economists Mr Robbie Kelleher and Mr Rossa White expect euro zone interest rates to remain unchanged over the course of 2005 and if they do go up, the magnitude of any increase is likely to be small.
At the same time, the Government's fiscal position is more favourable than it has been for some time. In next month's Budget, Mr Cowen has considerable leeway in terms of both tax relief and increase spending than has been the case for a number of years.
Davy estimates the Minister could return about €1.5 billion to taxpayers and still target a deficit of about €2 billion (1.4 per cent of GDP), which would be in line with the medium-term projections set out in last year's Budget.
Even Ireland's nagging inflation problem may be improving. The report points out that the trend in "core" inflation measure, which excludes food, energy and mortgages, has been "quite encouraging".
Core inflation stood at just 1.9 per cent in October, the bulk of the difference between the core and headline rates is due to rising energy prices which may have peaked.
However the report cautioned that the housing market remains a "major concern" with house building likely to slow from current record levels.
They add that the sluggish growth in consumer spending this year may well the first sign that the burden of servicing the huge increase in debt is beginning to weigh on consumers' pockets.