Election 2016 key potential ‘flashpoint’ for economy

Uncertainty caused by the result of the upcoming general election makes the poll the "most important potential flashpoint" for the economy this year, according to Dublin-based stockbroker Goodbody.

“Poll ratings are improving for the incumbent Government parties but it is not yet clear that the coming general election will deliver a stable government over the next five years,” said Dermot O’Leary, Goodbody’s chief economist, in his first quarter economic analysis.

“Sustained political stability since 2011 has played an important role in Ireland’s ability to implement reforms and engineer an internal devaluation.

“This has contributed to the improvement in competitiveness and economic recovery. It has also been important in enhancing Ireland’s reputation abroad.

"Of the major issues facing Ireland in 2016, this one should receive significant attention from investors," he said, noting that the election must be held by April 8th.

Irish banks

Mr O’Leary has predicted that Ireland will achieve a budget surplus in 2017, one year ahead of target, based on rapid economic growth and the disposal of more of the State’s holdings in Irish banks. This would be the first time in a decade that Ireland’s public finances would be back in the black.

Mr O’Leary also believes Ireland will continue to be the fastest growing economy in the euro area both this year and in 2017. He said the expansion of the economy would bring down the deficit faster than expected, and the government should be close to balancing the books by the end of this year.

Additional sales of State-owned bank shares should reduce debt levels and put the State in a position to recoup its entire investment in the surviving Irish banks, Mr O’Leary said.

He is predicting a budget deficit of 0.3 per cent for this year and a surplus of 0.9 per cent for 2017.

Previous estimate

Goodbody now expects Ireland’s GDP to rise by 5 per cent in 2016, up from its 4.5 per cent forecast previously.

It has pencilled in GDP growth of 7 per cent for last year, up from its previous estimate of 6.6 per cent.

“We expect core domestic demand to grow by 5 per cent this year, the fastest since 2006,” Mr O’Leary said, adding that the growth this time would be “non-inflationary, credit-less expansion”.

The Government’s fiscal “prudence has slipped” in recent months due to the upcoming election but “strict adherence to European rules and the ongoing disposal of bank stakes should ensure further improvement in debt sustainability over the coming years”.

The stockbroker expects Ireland’s debt/GDP ratio to reduce from 98 per cent in 2015 to 93 per cent this year, and to 89 per cent in 2017.

Mr O’Leary expects the unemployment rate to fall to 7.3 per cent by the year-end from the latest 8.8 per cent figure.

He said the housing market was the “one disappointing aspect” of the Irish economy in 2015, with price growth slowing sharply, mortgage lending remaining below normal levels, and new supply only increasing modestly.

Goodbody expects house completions to increase to 13,918 this year, well below the expected demand of 30,000.

Mr O’Leary has predicted gross mortgage lending of €4.9 billion this year, up from €4.5 billion in 2015.

“Mortgage credit growth is likely to get off to a weak start, reflecting the slowdown in mortgage approvals over recent months.”