Economic growth is expected to remain strong over the next two years, with forecasts of GDP growth of 4.3 per cent in 2016 and 3.8 per cent in 2017, according to the latest Quarterly Economic Commentary published by the ESRI today (Wednesday 21 September). GNP growth is also expected to be robust, with GNP increasing by 4.1 per cent in 2016 and 3.5 per cent in 2017.
Improvements in the labour market are expected to continue with the unemployment rate forecast to fall to an annual average of 8.3 per cent in 2016 and an annual average of 7.3 per cent in 2017.
Author Kieran McQuinn commented, “There is now a considerable contrast between the domestic and external components of growth. With the former, investment and, particularly, consumption are fuelling present growth rates. On the external trade side, there is evidence of a softening of the growth performance. Notwithstanding the external risks, we still expect the economy to grow at a rate close to potential and outperform many other European economies.”
David Duffy added, “With consumption and investment set to be the main sources of growth in 2016 and 2017, this has important implications for budgetary policy. In particular, the significant pace of economic growth experienced by the Irish economy over the past number of years argues for a neutral fiscal stance in the forthcoming budget.”
Macropudential Measures in the Irish Housing and Credit Market
The Quarterly Economic Commentary includes a Research Note titled “An Empirical Assessment of the Macroprudential Measures in the Irish Housing and Credit Market”. This paper examines the impact of recent Central Bank measures, including Loan to Value (LTV) and Loan to Income (LTI) restrictions, on mortgage credit, house prices and housing supply in Ireland.
Kieran McQuinn noted “Our analysis finds that in the short run the combined effect of the LTV and LTI restrictions has been to reduce new mortgage lending by around 10 per cent. The effect on the housing market is as yet quite muted with house prices and housing supply being relatively unchanged. However, this is not surprising given the lags involved in construction.”
Dr. McQuinn continued, “The full effects of macroprudential policy are not evident until three to four years after the measures have been implemented. Our results suggest that in the longer term house prices are likely to be 3.5 per cent lower. This decline in house prices leads to lower profitability in construction, which lowers the number of housing units completed in each quarter by approximately 5 per cent.”
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