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Irish GDP (gross domestic product) will expand by +0.6% and GNP (gross national product)* will contract by -0.5% in 2010, according to NCB stockbrokers. Exports will perform strongly in the face of the global recovery while domestic demand will remain subdued. In 2011, NCB says GNP will expand by 2.8% and GDP will grow 3.3%.
Economist Brian Devine says price discounting by retailers has supported sales to-date and price pressures will remain subdued in 2010, with the HICP (EU Harmonised Index of Consumer Prices) declining by -1.2%. With prices dipping, consumer confidence stabilizing and consumer attitudes shifting towards value, the economist says the volume of retail sales will grow in 2010.
Retail sales represent approximately 45% of consumption with spending on transport, communications, professional services and housing making up most of the difference. Job losses and emigration, expected to total 30,000 in 2010, will weigh on overall consumption, which is expected to fall marginally. From 2011 onwards consumption is forecast to expand at 2-3% per annum as employment and wages begin to grow and the savings rate begins to decline from its 2009 high of 11%.
Devine says investment will once again be a major drag on the Irish economy in 2010, driven by another large decline in construction investment (-23%). Machinery and equipment investment is expected to pick up in 2010 and average 5-6% growth over the period 2011-2014. The economist says residential and commercial property market remains oversupplied and as such we expect construction investment to remain subdued over the next number of years. In percentage terms, he expects there to be little uplift in non-residential construction, in contrast to the residential new-build sector were there is likely to be quite a large increase in percentage terms as the number of completions works its way from 15,000 to 25,000 in 2014.
Overall, it translates into modest increases in construction investment and total investment going from -15%y/y to +7%y/y in 2014.
Devine says focus on correcting public finance imbalances will have to be given priority in each Budget to 2014. Government spending is expected to contract in each year between 2010 and 2014 as the government continues to shrink current expenditure in light of the budgetary deficits. The General Government Deficit (GGD) is forecast at 11.0% of GDP in 2010, down from 11.4% in 2009. The GGD is forecast to decline to 4% of GDP by 2014 if a further €6.5bn is taking from current expenditure/taxation. This represents 4% of 2009 GDP or 7% of personal disposable income. The debt to GDP ratio is forecast to reach 78% by the end of 2010 or 112% if the NAMA bonds are included.
The economist says the domestic part of the economy is forecast to decline by 3.5% in 2010 after dipping by 12% in 2009. In 2011, domestic expenditure is forecast to increase by 1.4%. Net exports are therefore set to be the main driver of growth in both 2010 and 2011 as the domestic Irish economy remains weak.
"Our view on the global economy is that it will perform better than expected in 2010 on the back of loose monetary policy and expansive fiscal policy," Brian Devine says. "Post-2010 we are not expecting a double-dip in the advanced economies but for these economies to muddle through as life support in the form of accommodative monetary and fiscal policy is withdrawn."
He adds that it is necessary to continually questions one’s views, especially as forecasting is even more than usual, extremely uncertain at this juncture.
*State agency Forfás says Gross National Product (GNP) is a better measure than GDP of the value added accruing to residents of the country. In Ireland, GNP is now considerably lower than GDP because of income flows to non-residents, especially profits and dividends of foreign direct investment enterprises. GNP is about 85% of the value of GDP. In 1970, the reverse was the case with GNP higher, because of income flows to Irish residents from abroad. As a result of this turnaround, GNP growth has been somewhat slower than GDP growth. Since 1970, real GNP has increased about four times. In the most recent year 2008, GNP decreased by 2.8% while in the five years (2003-2008) it increased by an average annual rate of 3.8%.
The growth in exports has been especially noticeable. Since 1970, the value of exports has increased over twenty times in real terms. The other demand components making up GDP have increased to a lesser extent over the same period, e.g. personal consumption over four times, public expenditure about four times and investment about five times.
Some of the growth of recent years has resulted from increasing numbers at work. While GNP at constant prices increased by 19% between 2003 and 2008, the increase per person in employment was much less at 1.3%.
NCB Irish Economy Monitor
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