The Central Bank has revised up its growth forecasts on the back of strong domestic demand despite citing the twin threats of Brexit and the potential economic policies of US President Donald Trump.
Chief economist Gabriel Fagan lauded the economy’s performance and said it had all the hallmarks of the ‘Phoenix Miracle’ – the theory that economies can recover from a crisis without the need for credit growth.
He argued Ireland had a “sustainable economic model” based on foreign direct investment and the inflow of capital and expertise from international companies, unlike some other eurozone economies hit by the financial crisis. He said Ireland was now a high-wage, high-cost economy.
“If you look at the literature on the Phoenix Miracle, the key feature is a strong recovery in activity, employment and output, but very weak movement in credit and debt,” Mr Fagan said.
“That’s the key distinguishing feature of such miracles that have been identified, and I think the Irish case fits the bill precisely.”
The Central Bank has revised up its growth forecasts by 0.2 percentage points to 3.5pc for this year and 3.2pc in 2018.
In its latest quarterly snapshot of the economy, the Central Bank said that, despite the concerns about Brexit and weak sterling, recent evidence points to a broadening of recovery on the domestic side of the economy, with consumer spending continuing to grow and the “revival” of construction.
Since 2012, employment had grown by more than 200,000, at an annual average rate of almost 2.5pc, the bank said.
“Looking ahead, the main impetus to growth in 2017 and 2018 is expected to come from the projected strength of domestic demand, reflected in solid growth in consumer spending and underlying investment.
“The main driver of growth will be continuing gains in employment and incomes.”
It said that in the short term and long term, the economic impact of Brexit on Ireland would be negative. So far, the impact of Brexit had been felt in the weakening in sterling. Mr Fagan said “the game is afoot” in terms of Ireland’s ability to attract investment from London as a result of Brexit, despite losing out to other European capitals for insurance giants like AIG and Lloyds.
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