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News : Irish Last Updated: Sep 30, 2009 - 7:32:52 AM

Irish Economy: Davy forecasts GNP growth of 4% in 2011; Ireland to exit recession in Q1 2010
By Finfacts Team
Sep 29, 2009 - 9:51:19 AM

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Since the recession began, Irish goods exports excluding the mainly US-owned chemicals/pharma sector have moved more or less in line with the decline in global heavy goods exports. They have slipped more than €2bn, or 20%, in two years. Recent favourable developments such as the decline in Irish wages and prices versus the rest of the euro area are most relevant for the companies that produce these exports as opposed to the multinational sector. The recent bottom in the global economy and nascent recovery should also lead to growth again in this area. But non-chemicals and pharma goods exports may lag the growth in euro area goods exports until Ireland's cost base has converged further. Any strengthening of sterling against the euro would help.

The Irish economy is set to return to growth in Q1 2010, according to Davy Stockbrokers and in the full year of 2011, GNP (gross national product) growth of 4% is forecast.

Davy is the first financial firm to issue a forecast following last week's data from the CSO, which showed that the economy as measured by GNP, contracted 0.5% in the second quarter of 2009.  

Davy chief economist Rossa White said: "We expect average annual growth of 0.5% in real GNP in 2010, but that conceals gradual acceleration in economic activity intra-year. It implies a peak-to-trough decline in GNP of 14% from Q3 2007-Q4 2009. We look for a broad range of indicators to indicate growth by early 2010, including survey data, retail sales, tax receipts and industrial production."

Report: Davy on the Irish Economy - Economy to grow by 4% in 2011

Davy said consumer spending may increase 1.5% as real incomes stabilise and precautionary saving eases. Export growth is likely to quicken as Ireland benefits from global economic recovery. The peak in unemployment will lag the trough in the economy by six to nine months. It's expected that the unemployment rate will peak below 14% in Q3 2010.

The broker expects the volume of GNP will grow at an above-trend rate of 4% in 2011.

It is assumed that agriculture, industry and private services will expand. Construction output will shrink until 2011, while the amount of public services may decline slightly. The economy will recover from a lower base due to firmer global demand (export growth is forecast to reach 6%), slowly loosening credit conditions, gradually falling household saving (from a 30-year high) and rising business investment.

Davy said it may not 'feel' like conditions are improving that quickly: domestic demand will lag growth in bottom-line GNP. In addition, unemployment will take time to fall: the rate is expected to eventually dip below 12% by end-2011. Equally, not every sector will be recovering: indigenous industry and construction will lag.

Households are now in debt payoff or debt write-off phase. Total household debt will drop both this year and next. However, incomes are down too, so the debt to disposable income ratio will fall only marginally to 170% on average next year from a peak of 175%.

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