Ireland should retain its title as the Euroland’s fastest growing economy in 2007, but is likely to fall behind Luxembourg and Slovenia in the monetary union growth rankings in 2008 according to PricewaterhouseCoopers’s latest report on the Euroland economies.
The latest economic analysis from PricewaterhouseCoopers forecasts that the Irish economy will grow by 5.2% in 2007, more than double the average growth rate for the Euroland as a whole. Ireland is expected to better the performance of all other Euroland economies this year but decelerating growth should see Luxembourg and Slovenia move above Ireland in the Euroland growth rankings by 2008.
The report emphasises the role of investment and exports as the main drivers behind the first quarter economic expansion, while consumer spending contributed little to overall economic growth. Looking ahead, consumers are likely to remain cautious in view of rising interest rates, the housing market slowdown and fewer maturing special savings accounts.
The external environment remains broadly positive and the strength of the Euroland economy should help boost exports growth in 2007. However, weaker demand in key markets in 2008, together with competitiveness issues related to the strength of the euro and Ireland’s high rate of inflation are expected to undermine exports growth prospects towards the end of 2007 and during 2008.
The report is positive about the performance of the Euroland economy in 2007, when the region is expected to expand by 2.5%. This rate of growth is forecast to slow to 2.2% in 2008, which is still satisfactory based on the Euroland economy’s historic trend. Importantly, France and Italy are expected to maintain momentum through to 2008, while the German economy should remain reasonably strong in 2007 but slow in 2008, as the current economic upswing loses momentum. The strength of demand in the Euroland economy and potential for rising price pressures are expected to prompt further increases in Euroland interest rates in 2007.
Yael Selfin, Senior Economist at PricewaterhouseCoopers, commented that:
“The cooling housing market and consumer caution are potential drivers of slower economic growth in Ireland, particularly in 2008. However, our forecast points to a modest slowdown and keeps Ireland on a strong growth path over the next 18 months at least”.
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)
Source: Eurostat; Central Statistics Office ( Ireland); National Institute of Statistics and Economic Studies (France); National Statistics Office (UK); PricewaterhouseCoopers forecasts (f).
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