Nevin Institute: Unemployment to fall below 8% next year

The Republic can expect a "steady decrease" in unemployment with the rate dropping to 8.3 per cent this year and 7.8 per cent next year, according to the Nevin Economic Research Institute (NERI).

In its quarterly economic observer, NERI also forecast “strong GDP growth” of 4.4 per cent in 2016, declining marginally to 3.5 per cent in 2017.

It said “progress and uncertainty” dominate the economic outlook on both sides of the Border.

In the Republic, the economy “continues to improve” although vulnerabilities remain “given the weakness of the broader European and International economies, the forthcoming UK Brexit referendum and the sustainability of positive benefits associated with low interest rates, low oil prices, accommodative ECB monetary policy and favourable exchange rates.”

Domestically, it said, “differences persist in the pace of recovery across the country”.

In Northern Ireland economic growth "remains positive, but small" while it faces "two specific concerns".

"First there are short-term uncertainties associated with the forthcoming UK referendum on its continued membership of the European Union, " it said. "These may persist if the UK votes to leave.

“Second, there are ongoing challenges related to the performance of Northern Ireland’s manufacturing sector.”

It said that in both economies, “challenges remain given high, if declining, long-term unemployment and lower than ideal levels of public investment”.

NERI said consumption in the Republic “will continue its recovery” driven by rising real disposable incomes, improving household balance sheets and a strengthening labour market while investment will “grow strongly” from its currently low base.

“The improvements in the economy will impact positively on the exchequers finances with the general Government balance falling to -0.6 per cent in 2016 and moving to balance in 2017.”

Further employment growth of 2.2 per cent is expected in 2016, and 1.8 per cent in 2017. It said it expects the numbers employed to exceed two million during this year.

In addition, there will be a “steady recovery” in average earnings which it expects to rise by 2 per cent in 2016 and 2.2 per cent in 2017.

“Domestic political uncertainty may have some short-term impact on government bond yields and financing costs but we expect the effect of this uncertainty on growth to be marginal and temporary,” it said.

“The overall fiscal stance is unlikely to be meaningfully altered even if the detail of fiscal policy may change.”