Quarterly Economic Commentary, Autumn 2007

Quarterly Economic Commentary, Autumn 2007 28/9/2007 Dr. Alan Barrett, Dr. Ide Kearney, Martin O'Brien Some of the main findings of the analysis include: We have revised downwards our growth forecast for 2008, relative to our June Commentary. Whereas in the June Commentary, we forecast GNP growth in 2008 of 3.7 per cent, we are now forecasting GNP growth of 2.9 per cent. We have also revised down our growth forecast for 2007, although to a more modest degree; 4.4 per cent, down from the 4.8 per cent forecast of three months ago. The dominant factor in these downward revisions is house-building. We now expect completions to be 78,000 in 2007 and 65,000 in 2008, compared with our June forecasts of 82,000 and 76,000 respectively. Although we are conscious of the uncertainties that currently exist in financial markets, we do not factor them into our forecasts because of their unknown impacts and duration. Our forecasts do take into account an anticipated slowdown in the US, with growth there now expected to be 1.9 per cent in 2007 and 2.1 per cent in 2008. As a result of the general slowing in the economy, employment growth will slow in 2007 and 2008 relative to 2006, with rates of 2.5 per cent in 2007 and 0.6 per cent in 2008. For 2008, we expect the unemployment rate to average 5.6 per cent. The public finances will also be affected by the slowdown, with the General Government Surplus forecast to fall from a surplus of 2.9 per cent of GDP in 2006 to zero in 2008. In our General Assessment of the economy, we make the following points: The adjustments in the housing market, both in terms of building activity and price, are part of a process of returning the Irish economy to a sustainable growth path. We do not see that there is a role for government in artificially propping up either prices or building activity. Current expenditure in 2008 will have to be curtailed relative to the very high growth rate of 12.9 per cent in 2007. Nevertheless, given the generally healthy state of the public finances, we consider that a mildly stimulatory budget in 2008 is affordable in the context of overall macroeconomic management, including the full implementation of the NDP.