Bank of Ireland Economist Predicts Growth to Hit 5% in 2005

Domestic demand, particularly consumer spending, driving growth

Dr. Dan McLaughlin, Chief Economist, Bank of Ireland Group today (Tuesday, 23rd August 2005) presented his quarterly economic outlook for the remainder of 2005. He indicates that Irish economic growth is being fuelled by domestic demand with consumer, Government and business sector spending to drive growth of 5% this year.

Commenting on the factors behind these forecasts Dr. McLaughlin said, "Ireland's manufacturing led growth has given way to a services and construction based expansion with domestic demand, particularly consumer spending, driving growth. This consumer spending, allied with a strong advance in capital investment and robust government spending, will generate a 6% rise in domestic demand, an acceleration from the 4.7% increase recorded last year and the 4% rise in 2003. Economic growth as a whole, however, is likely to rise by 5% in 2005 dampened by weak export growth, in turn reflecting the malaise affecting the manufacturing sector."

Commenting on inflation and the Government deficit Dr. McLaughlin said: "Despite the strength of consumer spending inflation has remained around the EU norm. Prices are stagnant or falling in the high street, implying that competition has been enhanced with the influx of foreign retailers. This will continue to act as a disinflationary force, keeping inflation at 2.5% this year and next. The Government is on course to record a much lower borrowing requirement than projected last December. We anticipate a deficit of Euro 1.4 bn, thanks in part to a Euro 1.2 bn overshoot in tax receipts. This is consistent with a General Government Surplus of some Euro 400 million.

Looking toward 2006 the domestic led growth will continue to drive the economy, according to Dr. McLaughlin. "The pattern of domestic led growth, with the consumer to the fore, is likely to be replicated in 2006. Consumer spending will be augmented by the release of SSIA funds, although the majority will not mature until early 2007. Nevertheless, the impact will still be significant, underpinning a 7.0% rise in personal consumption. This will help in propelling growth back up to its 6% potential, assuming exports continue to recover."

Ends

For reference:
Dr Dan McLaughlin
Chief Economist
Bank of Ireland
Tel: 01 609 3326

Damien Daly
Head of Marketing
Bank of Ireland Global Markets
Tel: 01 609 3221

Mary Brennan
Group Corporate Communications
Bank of Ireland Group
Tel: 01 604 3838

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