The Irish economy grew strongly over the third quarter of 2007, albeit at a slightly more measured rate than in the first half of the year. The economy looks set to slow further in 2008, according to PricewaterhouseCoopers.
The latest economic analysis from PricewaterhouseCoopers estimates that the Irish economy grew by 4.9% in 2007. This was significantly above the average rate of growth in the Euroland, which is estimated at 2.6% for the same period. Growth in Ireland is expected to be more modest in 2008 than in 2007, with the slowing housing market contributing to a contraction in investment and easing consumer spending growth. Growth of 3.5% is forecast for 2008.
According to the report, consumer spending continued to grow strongly over the third quarter, with employment gains continuing to support consumer spending. Business investment, however, contracted in the third quarter and was led lower by falling output from the construction sector.
Recent indicators suggest that consumer spending eased over the final quarter of 2007, with both retail sales growth and consumer confidence trending downwards. Slowing consumer spending growth is likely to continue in 2008, as falling house prices and a less vibrant labour market constrain consumers’ ability and willingness to spend. The recent turmoil in global capital markets is also likely to lead to tighter lending conditions and make access to credit more difficult, which should further limit spending growth.
House prices are expected to continue to fall in early 2008, while residential construction investment and employment in the construction sector are also likely to fall. The outlook for the external sector is less positive than in 2007 with the strength of the euro, combined with the slowing economies of Ireland’s trading partners, set to see export demand ease over the course of the year.
The recent surge in the rate of inflation poses another challenge for Ireland in the year ahead. Although inflation is expected to moderate slightly in 2008, further commodity price increases present a significant upside risk to this outlook.
Yael Selfin, Head of Macro Consulting at PricewaterhouseCoopers, commented that:
“The economic slowdown in 2007 is likely to continue further in 2008, as further house price falls, lower employment gains, tighter credit conditions and easing export demand undermine the pace of growth. Nevertheless, Ireland should still remain one of the Euroland’s fastest growing countries in 2008.”
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)
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For more macroeconomic analysis by PricewaterhouseCoopers, please visit www.economics.pwc.com
