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Davy upgrades economic growth forecasts for 2021

Davy has upgraded its growth forecast for the economy for this year on the back of buoyant exports and multinational sector output, especially from the pharmaceutical and information and communications technology sectors.

The stockbrokers have pencilled in GDP growth of 4.8% for this year, an increase from its earlier prediction of 3.8%.

It is also predicting growth of 5.5% in 2022.

It said it expects the multinational sector will have grown by 20% last year and to grow by a further 6% this year.

But it also cautioned that new Covid-19 business and travel restrictions will disrupt domestic spending in the first half of 2021.

Davy has forecast a slower recovery in the indigenous sector, with output set to contract by 10% in 2020. It is then expected to expand by 2.7% and 8.3% in 2021 and 2022.

Economic activity will bounce back sharply in the second half of 2021, but Davy said that in calendar year growth terms, this pushes the recovery into 2022. 

But it added that the positive news on vaccines could mean that activity rebounds in the second half of 2021 more quickly than it had forecast. 

“Hence, we expect an incomplete recovery this year in consumer spending (5.2%) and employment (5.9%), with the unemployment rate declining to 12% by end-2021,” Davy said. 

“In contrast, we expect Ireland’s government deficit will fall to €18 billion (4.6% of GDP), still outperforming peers, with the debt/GDP ratio at 61%,” the stockbrokers said. 

It also said that the housing market has been “exceptionally resilient” and it expects house prices to rise 3% in 2021 with mortgage lending rebounding to €9.5 billion.

Davy said that during 2020 the economy showed that activity and spending can bounce back once restrictions are lifted, especially with savings elevated.  

It also cautioned that its forecasts could be too conservative, assuming that output in hard hit sectors – including construction, retail and hospitality – remains below pre-Covid-19 levels by the end of 2022. 

“One risk here is that financial stress and company liquidations delay any rebound, although the initial signs from loan performance have been encouraging,” the stockbrokers said. 

The fact that a no-deal Brexit was avoided by the EU and UK may encourage investment among SMEs after over a decade of balance sheet repair, it added.

Article Source: Davy upgrades economic growth forecasts for 2021 – RTE

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