| Source: Davy |
Davy Stockbrokers has lowered its Irish economic growth forecast for this year to 4.5% from the previous 5%, because of a slowdown in the housing sector.
Davy says that GNP (Gross National Product) is estimated to have grown by 7.4% in 2006, the fastest rate of growth recorded for the Irish economy since 2000. However, a slowdown in the rate of growth is likely in the coming years. Consumer spending growth is likely to slow to 2.5% in 2008 as the SSIA impact disappears, and the firm expects house completions to fall to 75,000. GNP growth of 3% is forecast for 2008.
Davy says that consumer spending and non-residential construction are both likely to expand strongly again in 2007. The former will benefit from a continuation of strong income formation and the release of the majority of SSIA accounts in the first four months of the year. The latter will reflect further commitment by the government to infrastructure spending at a time when the commercial property market remains strong.
But there is a growing body of evidence that the peak in the housing cycle has finally been reached. Trends in housing starts have been particularly weak. Davy recently revised down its forecast for house completions in 2007 from 87,000 to 82,000. It has further reduced that figure to 80,000. That represents a 9% contraction in the volume of output of a sector that now accounts for almost 10% of GNP. Davy says that in itself, that will act as a significant drag on the economy as a whole.
The revision of the 2007 growth forecast down to 4.5% implies that the economy, excluding housing, will expand at 6% this year.
Davy expects a further deceleration in the rate of growth of the economy in 2008. Housing output is forecast to drop to 75,000 new units, and the pace of growth in consumer spending should slow to 2.5% as the SSIA impact is reversed. It forecasts GNP to expand by 3% in 2008, unchanged from its last set of forecasts, but obviously off a lower base for 2007.