The "feel good" factor is back in the economy and growth this year should be close to 4 per cent, according to Davy Stockbrokers.
There is "growing evidence" that conditions started to improve in the second half of last year and that economic recovery has been sustained in the early months of 2004, the broker says.
Davy has been the most "bearish" of forecasters over the past couple of years and points out that there was little or no growth in the economy between early 2001 and early last year. However, it believes that recovery has firmly taken hold and is upgrading its gross national product (GNP) growth forecast this year to 3.8 per cent, from 3.1 per cent previously.
This forecast moves Davy to the more optimistic end of recent forecasts. The broker takes an optimistic view of most areas of the economy, saying that business and consumer confidence has improved, consumer demand will continue to be boosted by low interest rates and low inflation, and the fall in non-residential investment may be over.
GNP growth last year was just short of 3 per cent, Davy estimates, but stock building was a significant item in this and once-off statistical factors were also in play. "Hence the improvement from 2.9 per cent growth in 2003 to 3.8 per cent in 2004 should feel a lot better than the mere numbers might indicate."
Davy is looking for a sizeable uplift in consumer spending growth to 3.5 per cent this year in real terms, up from 2 per cent last year, while non-residential investment should stabilise after falling sharply in 2003.
Housebuilding is forecast to fall from 69,000 last year to 64,000 this year. However, in tandem with other forecasters, Davy warns that it continues to expect a significant fall in building volumes, "and probably price", in the years ahead.
It also believes that an improving international environment should boost export and has upgraded its prediction for volume export growth from 4.5 per cent to 6 per cent.
It forecasts that the annual inflation rate will go close to 1 per cent in the spring and that the annual average for the year will be 1.8 per cent.
