Economy to expand 1.1% this year, Davy predicts

THE ECONOMY here will expand by 1.1 per cent in 2011, Davy has predicted, cutting its forecasts as weakening global outlook weighed on exports.

Economist Conall Mac Coille said gross domestic product would grow by 1.7 per cent in 2012. Gross national product, which excludes the repatriated profits of multinationals, will grow 0.2 per cent in 2011 and 1 per cent in 2012, according to the report.

NCB Stockbrokers also cut its full-year economic forecast earlier this month, saying it expected gross domestic product to contract by 0.7 per cent this year. Chief economist Brian Devine previously said he expected GDP to fall 0.4 per cent for the year.

The International Monetary Fund has predicted economic growth of just 0.4 per cent for this year.

Mr Mac Coille said growth would be split between the export sector, which remains buoyant, and stagnating domestic demand, which he predicted would fall by 3 per cent for the year.

Consumer spending has continued to decline as people save their cash, with a 3 per cent decline expected this year and a contraction of 1.1 per cent in 2012. Investment is set to fall by 5.5 per cent in 2011, followed by a contraction of 0.3 per cent in 2012.

“Deteriorating global outlook means there are significant downside risks to our macroeconomic projections,” Mr Mac Coille wrote in a note. “Since our last forecast, indicators of economic activity in Ireland’s main trading partners have deteriorated.”

Although the public finances are on track for the year, cuts for budget 2012 must still be implemented. However, Mr Mac Coille predicted there would be “relatively little adjustment” in the public sector pay bill in the coming years. He said more cuts to public sector pay should be considered to make sure the State could meet its targets.