Although remaining healthy overall, the slowing housing market and recent turmoil in global capital markets should see the Irish economy grow at a slowing rate in both 2007 and 2008 , according to PricewaterhouseCoopers.
The latest economic analysis from PricewaterhouseCoopers forecasts that the Irish economy will grow by 5% in 2007, more than double the average growth rate for the Euroland as a whole. However, easing consumer spending and investment growth should see the economy then slow to 4% growth in 2008.
According to the report, strong consumer spending and export growth drove economic activity over the first-half of 2007. Robust employment and earnings growth continued to support consumer spending despite high interest rates. Export growth was also healthy, with strong growth in the US and Euroland driving demand for Ireland’s exports.
Looking forward, several factors point to easing domestic demand in the remainder of 2007 and moving into 2008. First, the impetus that maturing SSIA accounts have been providing to consumer spending should begin to fall away, with higher interest rates also likely to slow spending growth. More importantly, however, the cooling housing market is likely to lead to a significant slow-down in residential construction investment in the short term.
Turning to the external sector, prospects are also set to decelerate. The economies of the US, the Euroland and UK are expected to slow in the short term, limiting export demand growth. Competitiveness is also set to deteriorate further, with comparatively high inflation and an appreciating euro – which reached an all-time high against the dollar in September – limiting the attractiveness of Irish exports and posing a threat to foreign direct investment.
Downside risks to this slowing but still relatively benign outlook have increased in recent months. The recent turmoil in global capital markets originating from the US subprime mortgage market has increased market uncertainty, with the extent of the impact on the real economy yet to be fully uncovered. A more pronounced slowdown in the housing market also has the potential to reduce growth sharply.
Yael Selfin, Head of Macroeconomics Advisory at PricewaterhouseCoopers, commented that:
“Downside risks to the outlook for the Irish economy have certainly increased in recent months, although our main projection is for continued robust growth overall. Much depends on the extent of the slowdown in construction, while a sharper-than-expected deceleration in the US also threatens economic prospects.”
Notes to editors
1. The table below sets out the PricewaterhouseCoopers main scenario for economic growth in the Euroland and UK economies in 2007 and 2008:
Table 1: GDP growth (annual % change)
| GDP annual % change |
2006 |
2007f |
2008f |
| Euroland |
2.8 |
2.4 |
2.1 |
| Austria |
3.3 |
3.1 |
2.6 |
| Belgium |
3.0 |
2.6 |
2.2 |
| Finland |
5.5 |
3.6 |
2.5 |
| France |
2.0 |
1.9 |
2.1 |
| Germany |
2.9 |
2.6 |
2.3 |
| Greece |
4.2 |
3.6 |
3.4 |
| Ireland |
5.7 |
5.0 |
4.0 |
| Italy |
1.9 |
1.8 |
1.6 |
| Luxembourg |
6.2 |
5.2 |
4.9 |
| Netherlands |
2.9 |
3.0 |
2.6 |
| Portugal |
1.3 |
1.7 |
1.9 |
| Slovenia |
5.2 |
5.4 |
4.8 |
| Spain |
3.9 |
3.6 |
2.7 |
| |
|
|
|
| UK |
2.8 |
2.9 |
2.0 |
| Source: CSO, Eurostat, PricewaterhouseCoopers forecasts (f) |
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