Ireland's economy is set to grow by 6 per cent this year, the fastest rate in the European Union, according to the European Commission. In its Winter Economic Forecast published this morning, the European Commission predicts that gross domestic product (GDP) will grow by 4.5 per cent in 2016 before slowing to 3.5 per cent in 2017. The estimates are a significant increase from figures published in May by the Commission. Then, the Commission predicted growth of 3.6 per cent for this year and 3.5 per cent in 2016.
However the Commission warned that the figures “should be read with some caution given their typical volatility.”
In its analysis of the Irish economy the Commission welcomes the fact that the strong recovery, which was initially driven by net exports, “is now firmly based on domestic demand across economic sectors.” It also notes that growth is being driven, not just by foreign multinationals, but by Irish sme’s which are exporting more due to the weak euro and improved access to finance
However, it warns of potential strains on housing and infrastructure as the country moves into a position of positive net migration.
The European Commission also notes that its analysis is based on Britain staying within the European Union. Asked if there were concerns about the possible impact of a British exit from the EU on the Irish economy, EU economics commissioner Pierre Moscovici said he did not engage in "what-ifs," adding: "We all expect and want the United Kingdom to stay in the European Union."
The report comes as the ESRI has warned that a British withdrawal from the EU could cost Ireland billions of euros.
In its Winter Economic Forecast, the European Commission says that Ireland’s unemployment rate this will year will be 9.5 per cent, slightly lower than the rate of 9.6 per cent estimated six months ago. Unemployment will fall to 8.7 per cent next year before reaching 7.9 per cent in 2017.
Overall the European Commission cuts its growth targets for the euro area for next year due to the slowdown in China and other non-European economies, and a weaker euro. GDP in the euro area will grow by 1.8 per cent next year, down from 1.9 per cent predicted in May.
Speaking in Brussels, EU economics commissioner Pierre Moscovici said that while this was the third year of consecutive growth for the European Union, the upswing would be “more muted” next year. “The risks to growth include the deterioration in the external environment and the international geostrategic situation,” he said.
Annual inflation is expected to be just 0.1 per cent in the euro area this year and 0 per cent for the EU as a whole. This should rise to 1 per cent and 1.1 per cent respectively next year. Commissioner Mosovici said that while the steep fall in oil and other commodity prices drove inflation into negative territory in the euro area in September , this masks the fact that wage growth and higher private consumption are increasing pressure on prices.
The European Commission’s regular economic forecasts are published three times a year.
While the Commission is due to present its verdict on the budgets of EU member states by November 23rd, Commissioner Moscovici said he would not comment on the issue today. He also said that no decision has been made on whether EU countries would be allowed extra budget leeway to take account of the costs of the migrant crisis. Ireland has supported a call from a number of countries including Austria and Italy for greater budget leeway to reflect the costs of the refugee crisis.
Under EU fiscal rules introduced in the wake of the euro zone crisis, all euro zone countries must submit their budgets to the European Commission for scrutiny by October 15th each year.
