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Davy upgrades GDP growth forecast for 2020 to 5.5%

Stockbrokers Davy have revised upwards their GDP growth forecast for 2020 to 5.5% from 4.1% previously.

Davy said the upgrade came on the back of strong foreign direct investment, expansion in the multinational sector and an exceptional export performance.

The new forecasts puts Davy well above official projections including the Central Bank’s estimate of 4.3% and the Department of Finance’s forecast of 3.9%. 

The stockbrokers also revised upwards their forecast for Irish GDP growth in 2019 to 6.2% from 5%

In its latest Irish Economist forecast, Davy said that exports are set to grow by 11% in 2019 and 7% in 2020, due to continued strong foreign direct investment levels. 

Davy also said it expects consumer spending to grow by 3.2% in 2020 and employment by 2.5%, with the
unemployment rate falling to 4.4% and the Budget surplus growing to 0.8% of GDP.

On Brexit, Davy said that the UK’s planned departure from the European Union uncertainty depressed the Irish indigenous economy in 2019.

The stockbrokers noted that about 50% of SMEs postponed investment plans and the pick-up in liquidity in the housing market was delayed. 

It also said that non-residential construction slowed sharply last year, with output in the distribution, transport and tourism sectors flat on the year. 

“Now that a no-deal Brexit cannot occur in 2020, we expect output in indigenous sectors to grow by 3.5% in 2020, slightly faster than the 3% in 2019,” Davy said.

It also said it expected house price inflation to rise slightly to 2% during 2020 from 1% in 2019. 

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No State spending spree: expenditure here stands at lowest share of GDP in the eurozone

No State spending spree: expenditure here stands at lowest share of GDP in the eurozone

Data released by Eurostat, the statistics arm of the EU, shows that Government spending here as a percentage of gross domestic product (GDP) is the lowest in the eurozone by a long way.

At 25.7pc, it comes in well below the 19-country bloc average of 46.8pc and far less than France, the biggest spender at 56pc.

Even though GDP is heavily distorted by the presence of multinationals here, the spending by the State is a vast degree lower than its eurozone peers.

The Government has vowed to keep spending on a leash as the economy comes off its export-driven sugar high of recent years that saw growth of 6.7pc last year.

The Department of Finance expects GDP growth to come in at 3.9pc this year and 3.3pc in 2020 and has said that the elimination of the budget deficit last year, when the State turned a surplus of €50m, was likely flattered by the impact of the economic cycle.

The Eurostat data also illustrates quite how far the country has come since the financial crisis after the budget deficit hit a peak of 32.1pc of GDP in 2010 and is now in balance, but the outcomes also show that other policy paths yielded outcomes that were as good as the one chosen here.

The euro area as a whole now has a budget deficit equivalent to 0.5pc of GDP, down from 6.2pc in 2009. While big-spending France is struggling to keep its deficit inside the confines of the Stability and Growth Pact, other members of the infamous ‘PIIGS’ club of crisis-hit economies have done well.

Portugal has a deficit of 0.5pc of GDP as of the end of 2018, down from 11.2pc in 2010.

Budget here suffered severe cuts in the early years of the post-crisis adjustment, but has since been aided by exports and the multinationals that have fattened coffers here by €14.3bn more than expected since 2015, according to employers group Ibec.

Portugal’s socialist Prime Minister Antonio Costa chose a different route when he took office in 2015 after the previous government imposed austerity measures in exchange for a €78bn bailout. He reversed many of the cutbacks, in the process pushing the budget deficit well beyond agreed levels. But an end to the hawkish, deficit-cutting approach revived the economy and by many metrics, those policies have been just as successful as the austerity imposed here as unemployment now sits at pre-crisis levels of 6.7pc, in line with the EU average.

Just like our own Taoiseach Leo Varadkar, Mr Costa was running a coalition government.

And just like Ireland, government debt levels in Portugal are high, at €244bn and more than 122pc of GDP compared with €206bn here and 64.8pc of GDP, although in terms of gross national income (GNI*) which is viewed as a better assessment of the real Irish economy, debt here stands at 107.3pc.

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