Global Economic outlook for 2008 remains positive despite slow down in U.S. housing market according to Bank of Ireland

- Two rate cuts expected by Fed in next 6 weeks
- Fed foresees housing market to influence U.S. economy into 2008
- Revision of year-end euro dollar forecast from $1.36 to $1.40

"The economic outlook for 2008 still looks very positive with the IMF (International Monetary Fund) indicating that the world economy is set to expand by 4.8%, which is slightly below the 5.2% estimate for 2007. These forecasts include downward revisions to previously published forecasts for the developed economies, including the US and the euro area. Accordingly, we expect two further rate cuts by the Fed in the next 6 weeks - specifically a quarter point reduction on October 31, with a similar move at the December 11 meeting", said Dr. Dan McLaughlin, Bank of Ireland's Group Chief Economist in its Global Markets' October Research Bulletin published today, (Friday, 26 September 2007).

According to Dr. Dan McLaughlin: "The U.S. housing market continues to have a strong hold on the U.S. economy. Residential construction has sharply declined since the housing market peaked in spring 2006. It fell by 16.5% in the year to the second quarter of 2007 and was the primary factor in GDP slowdown from 3.2% in 2006 to its current figure of 1.9%".

"Despite the Fed's initial predictions that the U.S. housing market would level off in mid-2007, it now anticipates housing to influence the U.S. economy well into 2008. Accordingly, the US Central Bank now expects the current period of sub-trend GDP growth to continue for another twelve months".

The housing market continues to be adversely affected by the sub-prime issue which could linger longer than the Fed's predictions. This may in turn impact on the broader economy by influencing consumer spending and discouraging financial institutions from lending".

"Against this backdrop, it is expected that the Fed will continue to ease its monetary policy in order to reduce the risk of the housing recession leading to a recession in the U.S. economy. We expect these rate cuts imminently in light of the recent economic housing data. To this end, we have revised our end-year euro dollar forecast from $1.36 to $1.40", concluded Dr. Dan McLaughlin.

Ends

Friday, 26 October 2007

For reference:

Dr. Dan McLaughlin
Group Chief Economist
Bank of Ireland Global Markets
Tel:01 609 3221

Anne Mathews
Media Relations Manager
Group Corporate Communications
Bank of Ireland
Tel:01 604 3836 / 087 246 0358

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