Davy has revised upwards its forecast for Irish GDP growth to 15.5% in 2021 and 6.7% in 2022 due to a buoyant multinational sector and a strong rebound in domestic activity.
The stockbrokers had previously predicted growth of 10% for this year and 5.6% for 2022.
It said the revision mainly reflects the “exceptional performance” of the buoyant multinational sector which has expanded by 24% so far this year.
But it added that buoyant employment, consumer spending and tax revenues also point to a strong rebound in domestic activity and it said it expects the indigenous sector output to grow 6.7% in 2022 compared to its earlier forecast of 6.3%.
Davy noted that inflation accelerated to 5.3% in October and it has pencilled in a 3.8% rise for the whole of 2021, which it said will hit real incomes.
“However, modest income tax cuts in Budget 2022 will support disposable incomes and we assume Irish households will cut their exceptionally high savings rate to offset price rises,” the stockbrokers said.
“Hence, our forecast is for 7.3% growth in consumer spending in 2022 to above pre-pandemic levels,” Davy said.
It also said it expects house price inflation will fall back to 4.5% next year, after 11% growth in 2021, as affordability holds back prices.
Forecasts for mortgage lending are broadly unchanged with Davy predicting lending of €10.4 billion in 2021 and €12 billion in 2022.
According to the stockbrokers, 2021 appears to have seen a sharp pick-up in housing demand, driven by the buoyant labour market particularly amongst more highly paid employment.
“This is evident not only in buoyant income taxes but also that the average mortgage approval for house purchase in November rose to a fresh high of €269,000, up by 8% on the year,” Davy stated.
Irish exports in the first three quarters were up 20% on 2020, which Davy said that once again reflected the buoyant multinational sector, which was impervious to any Covid-19 related disruption.
But Davy noted that indigenous export sectors, which had suffered during the pandemic last year, have also seen a rebound in 2021.
The stockbrokers also today forecast that the Government deficit in 2021 will equal just €5.8 billion, which represents 1.3% of GDP, or 2.5% of GNI, as the performance of the public finances have beaten all expectations.