Ireland's burgeoning population of young affluent consumers should ensure that Ireland's economic growth over the next 15 years will be the envy of Europe, according to new research by NCB stockbrokers.
In a major new study titled 2020 Vision, NCB economists Dermot O'Brien and Eunan King point to the demographic dividend which should ensure that demand for houses, cars and services will remain buoyant in the near term.
The Irish baby boom which was later than other countries spans the years between 1971 and 1983 when 900,000 babies were born. This age group which is the biggest single cohort is now entering its period of maximum consumption and will have a major influence on shaping of Irish economic and social policy in the years ahead, according to NCB.
NCB estimates that when immigration is added to the Ireland's high birth rate, Ireland's population will exceed 5.3 million by 2020 with immigrants accounting for 20 per cent of the population.
The next 15 years will be marked by a high levels of consumption which, alone, could amount to 2.75 per cent in GDP growth. However the tide will turn after 2020 with the greying of the baby boom generation and pension costs will take up a greater slice of GDP.
Crucially for the economy, NCB estimates that productivity growth of 4 per cent is possible as higher skilled service workers replace those in manufacturing. However this forecast is based on optimistic assumptions of the widespread use of IT and a flexible labour market.
Immigrant labour will be a central pillar of future growth and NCB's research shows that contrary to common perception most immigrants are employed in high-skilled sectors. The research based on CSO data shows that 65 per cent of immigrants are in high-skilled jobs compared to 60 per cent of the native population yet the majority of immigrants are still working in jobs below their qualifications.
Against such a positive backdrop it is not surprising that NCB expects demand for housing to remain strong though the market should cool from its current levels. NCB expect the housing market to peak at 11 per cent this year before falling to 6 per cent in 2007 and landing softly on low single digits thereafter.
Some economists have been puzzled by the apparent conundrum between surging employment growth, which has overtaken overall economic growth, implying a fall in productivity.
However, Mr O'Brien and Mr King believe that Ireland's growth rates have been underestimated and events in the real economy point to a more robust level of activity than is borne out in the official statistics. NCB believes that the GDP growth figures will be eventually revised upwards to 6 or 6.5 per cent.