Davy has revised upwards its growth forecast for the Irish economy this year, despite soaring inflation and the war in Ukraine.
While the Central Bank and Ibec have slashed their forecasts, stockbroker Davy on Wednesday said it expects the economy - as measured by Gross Domestic Product - to grow by 8.2 per cent in 2022, up from a previous estimate of 7.6 per cent.
However, it added it expects a “soft patch” for consumer spending in mid-2022 as inflation accelerates to a peak of 8 per cent, leading to a slightly weaker recovery for the domestic economy, which is forecast to grow by 6 per cent this year.
Davy said it had revised its growth forecast upwards as it expects the Irish economy to “prove resilient” to uncertainty driven by the Ukraine war.
“We expect the erratic 5.4 per cent contraction in Q4 2021 to unwind in Q1 2022, given that industrial production was up 15 per cent in the three months to February,” it said.
“The more important point is that Ireland’s defensive export sector – concentrated in pharma, med-tech and technology – should continue to perform despite the uncertainty of events in Ukraine, just as it did during the pandemic.
“We expect Irish exports to grow by 9.5 per cent in 2022 and 6.8 per cent in 2023.”
Consumer spending
The stockbroker said it expects electricity and natural gas price rises will push inflation for Irish consumers to a peak of 8 per cent in June, hitting households’ disposable incomes.
“Hence, after a strong rebound in Q1 2022, we expect the pace of recovery in consumer spending to slow during the summer.”
Consumer spending is forecast to grow by 5.3 per cent in 2022, versus 7.3 per cent previously, “still benefitting from the tailwind of eased Covid-19 restrictions.”
Activity in the housing market is also expected to step up this year, Davy said.
“We expect residential property price inflation of 7 per cent in 2022. Market activity has also made a strong start to 2022, with transactions in the first four months up 14 per cent on 2019 levels.
“We expect housing completions to rise to 26,500 in 2022 and 33,000 in 2023. This means gross mortgage lending will accelerate from €10.5 billion in 2021 to €12 billion this year and to €14.1 billion in 2023.
“Our forecast also implies the stock of mortgage lending will see its first positive year of growth in 2022, up 1.5 per cent to €88.5 billion.”
