Ireland’s expected gross domestic product (GDP) growth rate for 2006 is expected to be around 4.75pc compared with the Euroland average of 2pc, according to the latest economic analysis from PricewaterhouseCoopers (PwC).
Looking further down the line, average Irish GDP growth for 2007 is expected to be 5pc compared with the Euroland average of 2pc.
PwC says that domestic demand should continue to be the main driver of economic growth in Ireland, with robust consumer spending being underpinned by strong employment growth.
While investment in housing is projected to gradually decline over the forecast period, business investment should strengthen. Real wage growth as a result of strong income growth is likely to outpace productivity and erode competitiveness of exports while import growth is projected to accelerate in 2007 in line with the pick-up in consumer spending.
PwC said the 2006 Budget was expansionary overall, with the bulk of economic stimulus coming through a boost to personal incomes.
However, PwC warns the main risks to this confident scenario are an appreciation of the euro against the dollar, a marked slowdown in the UK economy and a sharper-than-expected downturn in the Irish housing market.
Looking at the impact on Euroland through higher oil prices, PwC estimates that the impact on Euroland economies should be relatively modest. However, a permanent US$10 per barrel rise in oil prices could see the Euroland economy suffering an output of around 1pc of GDP after five years, with a longer run output loss of around 1.25pc of GDP after 10 years.
By John Kennedy