ESRI forecasts continuing growth led by domestic sources in 2017

• GDP growth forecast at 4.2 per cent in 2016 and 3.5 per cent in 2017
• Robust consumption and investment growth predicted in 2017
• External risks may negatively affect exports in 2017
• Labour market continues to improve with unemployment falling to 6.8 per cent by the end of 2017

Overall economic growth is expected to be robust in 2016 and 2017, with forecasts of GDP growth of 4.2 per cent and 3.5 per cent respectively. These forecasts have, however, been revised marginally downwards since the beginning of the year, largely as a result of the Brexit referendum and other potential trade-related uncertainty. Uncertainty surrounding Brexit and the weakening of sterling are likely to hinder Irish export growth in 2017.

Domestic sources of growth remain relatively robust. The building and construction components of investment have picked up in recent quarters and should continue to grow into the New Year, resulting in approximately 17,500 housing completions in 2017.

The labour market continues to improve and the unemployment rate is expected to reach 6.8 per cent by the end of 2017.

Although the consumer sentiment index has not increased in recent months, the figure remains above the long-term average.

The combination of the above factors, combined with a muted inflation forecast, is likely to support strong consumption growth of 3.5 per cent in 2017.

Author Kieran McQuinn commented, “The outcome of the Brexit referendum was the most significant international development for the Irish economy in 2016. It is increasingly apparent at this stage that it may take some time before the necessary trade arrangements are concluded. Until that happens, variables such as exchange rates, stock market returns, producer and consumer sentiment may continue to display heightened volatility. This, inevitably, impacts on our assessment of the trade performance of the Irish economy.”

Dr McQuinn also said, “Given the strong rates of productivity growth and falling levels of unemployment in the domestic economy, it would appear that the Irish economy is at or is very near to its potential level of output. From the public finances perspective, the most significant outcome of the recent growth performance is the likelihood of a close to balanced budget in 2016, with the prospect of a modest surplus in 2017 under current budgetary policy.”