War and inflation won’t slow Ireland’s astronomical growth, says Davy

The Irish economy is not slowing down and growth is set to beat previous estimates, according to new forecasts from Davy Stockbrokers.

The economy will prove as resilient to the situation in Ukraine as it was to Covid, thanks to strong demand for Irish exports, says Davy.

That’s a dramatic departure from most other forecasters, including the Treasury and Central Bank of Ireland, which have lowered their expectations for economic growth this year on the back of the Russian invasion of Ukraine and rising inflation.

Although inflation is now expected to peak at 8 percent in June, the new Davy estimates forecast robust job growth this year, with the unemployment rate averaging 4.8 percent this year.

Conall MacCoille, Davy’s chief economist, said he expects Ireland’s gross national product (GDP) to grow 8.2 per cent in 2022 and 5.8 per cent in 2023. This compares to the Treasury Department’s current forecasts of 6.4 percent this year and 4.4 percent in 2023.

Davy’s growth rate for this year has been revised upwards from a previous forecast of 7.6 percent.

The Davy forecast accounts for continued strong growth for the multinational sector of 9.4 percent in 2022. Domestic business growth is expected to be slower at 6 percent, which has been revised down from 6.7 percent.

Consumer spending was also revised down, to 5.3 percent growth in 2202 from a previously expected 7.3 percent.

This, despite a huge savings glut built up during Covid and robust job growth, does reflect greater caution as a result of pressure on household spending from inflation, which Davy estimates will peak in the summer, but will average 6.9 percent for the year, the highest in this decade.

But wage growth averaging 5 percent in the economy, job creation and reduced taxes will help mitigate the damage, Davy believes.

However, if Davy’s predictions are correct, expected export-led economic growth will support public finances, which are expected to come close to near-balance this year – with government spending just €1.1 billion above government revenues. For 2023, Davy even expects a budget surplus of 3 billion euros.

Earlier this month, both Treasury Secretary Paschal Donohoe and Public Expenditure Secretary Michael McGrath warned that the situation is likely to get out of hand this year as they expect spending related to the cost of managing inflation, as well as potentially billions, to rise euros to support refugees.

And that’s despite the state posting a surprise surplus in the first three months of the year after a massive 32 percent increase in tax revenue compared to the same period last year.