GDP growth to slow to 4% in 2008, from 5.3% this year according to Bank of Ireland's Quarterly Economic Outlook

"The Irish economy expanded rapidly in the first half of 2007 - GDP grew at an annual 6.7%, with final sales (GDP excluding stock-building) expanding by over 8%. This GDP performance is well above the 5.4% growth trend established since 2000 but activity looks set to slow somewhat over the next eighteen months, primarily reflecting a housing market correction. This will result in GDP growth of 4% in 2008, following a 5.3% average for this year as a whole, before a recovery in 2009, to 5%," according to Bank of Ireland's Quarterly Economic Outlook published today, Wednesday, 7 November 2007.

Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland said: "The supply response to the softening in house prices has been pronounced, with completions set to decline to 72,000 this year from over 88,000 in 2006, and to 58,000 in 2008. This is ultimately supportive of house prices. House building will not fall forever, and our expectations of a growth rebound in 2009 is partly due to a forecast upturn in completions in that year.

"The other components of national expenditure are forecast to remain supportive of growth in 2008. Consumer spending which is set to grow by 4.5% in 2008 following a 6% expansion in 2007 is in line with the growth in real household income, and highlights the absence of any pronounced SSIA impact on spending. The corollary is that consumer outlays are unlikely to fall away sharply, and the more modest projection for personal consumption in 2008 reflects a slowdown in household income growth, to around 7% from 9.5%. This in turn largely reflects lower employment growth as net job creation may emerge at 43,000 against 72,000 in 2007.

"Real incomes will also be supported by a sharp fall in headline inflation, which is forecast to average 2.7% from 4.8% in 2007. Discretionary spending may well be bolstered by ECB rate cuts - we anticipate two-quarter point reductions, starting in the second quarter of 2008.

"Labour force growth has outpaced employment growth of late and we expect this to continue in 2008, leading to a modest rise in unemployment. Labour force growth is forecast to slow, nonetheless, implying a reduction in the flow of annual migration, at least for the next twelve months."

"The Government's fiscal position is not one to prompt concern. The Minister for Finance has announced a spending total for 2008 which is virtually identical to that signalled twelve months earlier, and tax revenue is forecast to exceed day-to-day spending by €6.0bn, which hardly suggests the need for revenue-raising measures", concluded Dr Dan McLaughlin.

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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