Economic growth is expected to remain strong in 2016, with Ireland’s Gross Domestic Product (GDP) forecast to grow by approximately 4.6 per cent in 2016 and 4.2 per cent in 2017, according to the latest analysis by researchers at the Economic and Social Research Institute. The authors also note that GNP is set to grow by 4.8 per cent in 2016 and by 4.3 per cent in 2017.
In the Quarterly Economic Commentary, Summer 2016, published today (Tuesday, 21 June 2016) a decline in unemployment is also expected, with the headline rate envisaged to fall to 7.6 per cent by the end of 2016 and to 6.5 per cent by the end of 2017.
Speaking about the report, author Kieran McQuinn said “We still expect the Irish economy to register very significant growth in 2016 and 2017, particularly when compared with other European economies. However there are some indications that the slowdown in global trade, coupled with the uncertainty surrounding the outcome of the Brexit referendum in the UK, is having an adverse impact on the traded sector of the Irish economy. These are the main downside risks to the Irish economy at present”.
Co-editor David Duffy added “It is now clear that domestic sources of growth, investment and consumption are the main determinants of the increase expected in Irish economic activity. While the upward trend in commercial construction is likely to continue in 2016 and 2017, there is as of yet no real indication that housing supply is growing much faster than the 2015 figure.”
Cross-Country Residential Investment
A Special Article published in the Quarterly Economic Commentary, Summer 2016 highlights the evolution of residential investment rates across select European countries for the period 2003 to 2014 and examines the likely supply response of the Irish housing market in a European context.
Cross Country Residential Investment Rates and the Implications for the Irish Housing Market, by David Duffy, Daniel Foley and Kieran McQuinn (ESRI), examines the fundamental factors affecting the rate of residential investment in both the long and short run. In particular, the authors estimate a long run fundamental rate of housing supply and examine the degree to which the actual rate converges to this fundamental rate.
Commenting on the article, Kieran McQuinn, a co-author said, “From the analysis, we find that residential investment is significantly impacted by real GDP per capita, real house prices, as well as the ratio of population aged 25-39 to total population. The counterfactual analysis we conduct suggests that actual levels of residential investment in Ireland were far below levels necessary in the early 2000s and at present are below the level suggested by fundamentals. The results of our analysis suggest that it may take up to four years for residential investment to adjust to the fundamental level implied by demand.”
Dr. McQuinn continued, “There are potential policy measures that can be undertaken by the Government to speed up this process. For example, previous research outlined in the Quarterly Economic Commentary, Winter 2015 suggests that the use of a site tax that increases in line with land prices may be an effective tool to accelerate the supply of housing into the Irish market at a time when it is in high demand.”
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