Economic growth set to remain strong in 2017 and 2018

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  • GDP growth forecast at 5.0 per cent in 2017 and 4.0 per cent in 2018.
  • Growth continues to come from domestic sources with a strong forecast for household spending.
  • Robust expansion of labour market will continue with unemployment expected to average 6.1 per cent in 2017 and 5.4 per cent through 2018.
  • In light of the expected strong growth rates in the economy, a neutral fiscal package in the forthcoming budget is the most appropriate policy at this time.

The Irish economy appears to be maintaining pace with its performance in 2016, strongly driven by domestic factors. Improving household balance sheets and falling unemployment are expected to support solid consumption growth over the forecast horizon. Upward trends in underlying investment activity, particularly construction, look set to continue into 2017 and 2018 according to a variety of indicators.

The Irish labour market continues to perform strongly. Job growth has continued across regions and sectors, and part-time positions have been replaced by full-time positions at an accelerated rate.  The unemployment rate is forecasted to average 5.4 per cent in 2018. This tightening of the labour market and positive projections for inflation should also support moderate rises in wages over the period. As the labour market approaches structural employment levels, wage growth has intensified, rising four times faster in the period between Q2 2016 and Q2 2017 compared to the same period in the previous year.

This issue of the Quarterly Economic Commentary includes a focus on public investment in the Irish economy. Abian Garcia-Rodriguez discusses the possible gains for the economy due to the proposed increase in Government capital investment, highlighting that any increase in public investment should be mindful of the risks of overheating the economy while also maintaining fiscal discipline. In a supporting commentary, Edgar Morgenroth notes that investment must be introduced in a regionally balanced manner, warning that ill-advised plans may run the risk of increasing construction prices further, which may then slow the rate of growth currently seen in housing completions.

Author Professor Kieran McQuinn commented, “With respect to the forthcoming Budget, the key challenge for the Government is how to transition the economy from one enjoying elevated rates of economic growth into a more stable period of sustainable activity over the medium-term.”

Fellow co-author Dr Conor O’Toole said, “The economy is continuing to expand strongly on the back of improvements in household balance sheets and more favourable employment conditions. This will provide a supportive context for household spending, which is expected to grow solidly.”

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