Stockbroker and wealth manager Davy has revised down its forecast for Irish GDP growth to 3.5% in 2023 from 5.8% previously, due to the negative impact of higher energy prices and CPI inflation on consumer spending and other factors.

However, economist Conall MacCoille expects that the export sector should still see robust growth next year, keeping Ireland’s GDP growth in positive territory and well ahead of the consensus forecasts for the euro area and UK.

Davy has also have revised down its forecast for housing completions to 27,000 in 2023, which will constrain growth in the mortgage market.

“The bigger picture is that we see Ireland’s housing market as relatively resilient given enormous pent-up demand and leverage/income gearing constrained by the mortgage lending rules,” MacCoille added.

“The Residential Property Price Index rose by 0.8% in July, with annual inflation still at 13% and exhibiting little sign of any slowdown so far.

In Association with

“Anecdotal evidence points to a marked slowdown in asking prices through the summer. We have therefore left our forecast for Irish RPPI inflation unchanged at 7% through 2022.”

In MacCoille’s view, economic uncertainty coupled with the prospect of the ECB rate hikes to 2% by end-2022 present headwinds to house prices. His forecast for RPPI growth, or house price inflation, through 2023 is 3%.

MacCoille believes the squeeze on real incomes will intensify during the winter as energy prices are passed through to households and despite fiscal action to compensate households.

The Davy expectation for consumer spending growth next year is 1.8% from 4.9% previously. In real terms, this means spending will still be close to pre-pandemic levels by the end of next year.

DAVY ECONOMIC FORECAST

▪ Irish GDP to grow 9.4% (8.2% previously) in 2022 and 3.5% in 2023 (5.8% previously).

▪ Despite a likely European recession, Ireland’s defensive export sector will see 7% growth in 2023.

▪ Consumer spending is forecast to grow by 1.8% in 2023 (4.9% previously), reflecting the hit to real incomes from energy prices and CPI inflation.

▪ Employment is expected to slow to 1.1% growth in 2023, with the unemployment rate rising slightly to 4.8%.

▪ General government surplus of €4bn (0.8% of GDP) in 2022 and €9bn (1.7%) in 2023.