Davy is now forecasting Irish GDP growth of 10 per cent in 2021 (vs 4.8 per cent previously) and 5.6 per cent in 2022.
The main reason is buoyant exports and multinational sector. However, the indigenous economy suffered a shallower contraction than feared in 2020 and Q1 2021.
An “exceptionally sharp rebound” has begun since May when Covid-19 restrictions started to be relaxed, evident in credit/debit card spending and falling jobless claims.
Ireland’s vaccination programme has now surpassed the UK with remaining restrictions set to be relaxed in the coming months.
“Hence Davy now expects Ireland’s indigenous sector to grow by 5.2 per cent in 2021 (vs 2.7 per cent previously), with output returning to pre-pandemic levels by early 2022. This is a faster recovery than we previously expected.”
Consumer spending saw a very sharp fall, down 6 per cent in Q1 and 15 per cent vs pre-pandemic levels. However, Davy expects a fast recovery during the summer, spending increasing close to pre-pandemic levels by end-2021.
The Government is not planning any tax rises in October’s budget for 2022 and household income supports have been extended to March. Core investment spending which contracted by 1.5 per cent in 2020 is forecast to grow by 4 per cent in 2021 and 7 per cent in 2022. Here a pick-up in housing completions to 22,000 this year and 26,000 in 2022 will help.
Davy expects house price inflation of 8 per cent in 2021, slowing to 3.5 per cent in 2022, with the mortgage market expanding to €10 billion in 2021, €11.2 billion in 2022.
Key elements of new Davy forecast:
▪ GDP to expand by 10 per cent in 2021 and 5.6 per cent in 2022.
▪ The upward revision to GDP growth reflects the buoyant multinational sector and exports, both expected to expand by 15 per cent this year.
▪ Indigenous sector output to see faster rebound in 2021, expanding by 5.2 per cent this year and 6.3 per cent in 2022.
▪ Consumer spending to see a sharp recovery in H2 2021, translating into 2.8 per cent calendar year growth in 2021 and accelerating to 8.6 per cent in 2022.
▪ Underlying investment to stage a recovery in 2021, with core investment up 4.2 per cent in 2021 and 7.4 per cent in 2022.
▪ House price inflation to accelerate to 8 per cent in 2021, slowing to 3.5 per cent in 2022.
▪ Mortgage market to equal €10 billion in 2021, rising to €11.2 billion in 2022.
▪ Government deficit of €19.5 billion in 2021, 4.7 per cent of GDP, 3.2 per cent in 2022.