The Economic and Social Research Institute (ESRI) published its latest quarterly economic survey this week, in which it predicts that Ireland’s GDP will grow by 4.6% in 2016 and 4.2% in 2017. The 2016 GDP estimation is down slightly from the 4.8% predicated in December last.

The ESRI’s summer 2016 quarterly survey also predicts that GNP will grow by 4.8% this year and by 4.3% in 2017. Unemployment, it adds, will fall to 7.6% in 2016 and to 6.5% by the end of next year.

Speaking about the report, author Kieran McQuinn said: “We still expect the Irish economy to register very significant growth in 2016 and 2017, particularly when compared with other European economies.

“However there are some indications that the slowdown in global trade, coupled with the uncertainty surrounding the outcome of the Brexit referendum in the UK, is having an adverse impact on the traded sector of the Irish economy. These are the main downside risks to the Irish economy at present.”

Co-editor David Duffy added: “It is now clear that domestic sources of growth, investment and consumption are the main determinants of the increase expected in Irish economic activity.

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“While the upward trend in commercial construction is likely to continue in 2016 and 2017, there is as of yet no real indication that housing supply is growing much faster than the 2015 figure.”

Residential Trends

In a special report tacked on to the ESRI’s summer economic commentary, the evolution of residential investment rates across select European countries for the period 2003 to 2014 is tracked. The report also examines the likely supply response of the Irish housing market in a European context.

Authored by Kieran McQuinn, David Duffy and Daniel Foley, the report estimates a long-run fundamental rate of housing supply and the degree to which the actual rate converges to this fundamental rate.

Said McQuinn: “From the analysis, we find that residential investment is significantly impacted by real GDP per capita, real house prices, as well as the ratio of population aged 25-39 to total population.

“The counterfactual analysis we conduct suggests that actual levels of residential investment in Ireland were far below levels necessary in the early 2000s and at present are below the level suggested by fundamentals.

“The results of our analysis suggest that it may take up to four years for residential investment to adjust to the fundamental level implied by demand.”

McQuinn continued: “There are potential policy measures that can be undertaken by the government to speed up this process. For example, previous research suggests that the use of a site tax that increases in line with land prices may be an effective tool to accelerate the supply of housing into the Irish market at a time when it is in high demand.”