Ireland's GDP growth forecast to be more than double the average Euroland growth rate for 2007

Ireland had the fastest growing Euroland economy in 2006 and is expected to maintain its first place in the monetary union growth rankings in both 2007 and 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 5.4% in 2007 and 4.6% in 2008. This is more than double the corresponding average growth rates for Euroland. Not only is Ireland expected to better the performance of the big four EU economies (UK, Germany, France and Italy) in both 2007 and 2008, but it is expected to outperform Luxembourg and Slovenia, the other exceptional growth economies of the Euroland.

The report emphasises the growing reliance of the Irish economy on consumer spending as a driver of growth relative to investment, which became more pronounced in the fourth quarter of 2006. This is partly due to the attractiveness of credit to Irish households, underpinned by the continuing strength of the housing market and the higher rate of inflation relative to the Euroland average. The inflation disparity means that the centrally-set Euroland interest rates make borrowing relatively cheaper in real terms in Ireland.

Exporters are likely to be adversely affected by the rise of the euro and cost competitiveness is expected to remain under pressure as consistently low unemployment pushes up labour costs. On the other hand, positive consumer sentiment is expected to maintain the growth momentum of imports, resulting in net exports placing a drag on the economy in 2007. This drag on the economy should ease in 2008 as export growth picks up in 2008, as the US and major Euroland economies experience a modest acceleration of economic growth.

The report is positive about the performance of the Euroland economy in 2006, when the region’s GDP expanded by 2.6%. Although this rate of growth is forecast to slow to 2.3% in 2007 and 2.1% in 2008, this is still satisfactory based on Euroland’s historic trends. Importantly, France and Italy are expected to maintain momentum through to 2008, while Germany’s outlook is even more optimistic. This is likely to result in a further increase in interest rates in 2007 by the European Central Bank, the effect of which is likely to be further moderation of growth and inflation in the Euroland and Ireland.

Yael Selfin, Senior Economist at PricewaterhouseCoopers, commented that: “Ireland is expected to maintain its position at the top the Euroland economic growth tables in both 2007 and 2008. Despite the risks posed by high borrowing and the high rate of inflation, growth is sufficiently distributed across the various sectors of the economy to underpin a strong performance in the years ahead”.

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 – Euroland & UK real GDP growth prospects

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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For more macroeconomic analysis by PricewaterhouseCoopers, please visit www.economics.pwc.com

Report attached: Ireland's GDP growth forecast to be more than double the average Euroland growth rate for 2007 (word 559kb)