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Irish economy to outpace rest of Europe

Thursday, August 28 16:51:56

The Irish economy is set to grow by 3.1pc this year, a percentage point more than the government is forecasting, a Reuters survey of 12 economists found.

The rise from June's poll forecast of 2.3pc growth in gross domestic product this year follows a string of positive economic data, a fall in unemployment and a surge in house prices.

Due to the improved outlook and new EU calculation methods that judged the Irish economy to be about 6pc larger than previously estimated, the economists cut their forecast for this year's budget deficit to 3.8pc of GDP.

That compares to a previous estimate of 4.6pc and would see Ireland zero in on the EU's goal of reducing its once-ballooning deficit to 3pc of GDP by 2015 without the need for many more heavy budget cuts.

"A GDP increase of 3pc-plus looks on the cards, which should significantly ease the burden on the level of fiscal austerity required in the October budget," Alan McQuaid, chief economist at Merrion Stockbrokers, said referring to October's announcement of the 2015 budget plan.

A relatively painless budget "should be the end of the bad news as far as consumers are concerned," Mr McQuaid said.

Three of the nine economists who replied to an additional question on the budget for 2015 said the government could avoid any new tax hikes or spending cuts altogether. The average forecast for the level of adjustment needed next year was just over E300 million.

That would be far below the government's original estimate of E2 billion, which will cap an eight-year austerity drive that has seen E30 billion or close to 20pc of annual output taken out of the economy.

Finance Minister Michael Noonan has cautiously said the adjustment would be "somewhat less" than E2 billion if the momentum in economic growth and tax returns continues.

Ireland's recovery contrasts with the contractions or stagnations seen in France, Germany and Italy in the second quarter, with the economy moving off a low base with the aid of an international bailout programme.

The poll predicted economic growth of another 3.1pc next year for Ireland, above the government's April forecast of 2.7pc.

Unemployment has returned to the euro zone average of 11.5pc from a high of 15pc in 2012.

Economists see it falling below 10pc by the end of next year, boosting Taoiseach Enda Kenny's re-election hopes in 2016.

The mean forecast for house price growth this year rose to 10.5pc from 6.3pc after house prices in Dublin grew by 23pc in the year to July and a recovery began to spread outside the capital with prices up 5pc.

"The Irish economy is now in strong recovery mode as evidenced by rapidly falling unemployment, the very high level of business confidence indices, and - in a new development - strong consumer spending," said Eoin Fahy, chief economist at Kleinwort Benson.

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