Hibernian predicts Irish GDP growth of 5.4%

Geoff Percival:

HIBERNIAN Investment Managers (HIM) is predicting growth of 5.4% in gross domestic product (GDP) this year before a slowdown in growth to 3.9% and 3% over the next two years.

The company estimates the final growth percentage for 2006 to come in at 5.8%.

HIMs figures differ slightly from the most recent forecasts - put out by Bank of Ireland Global Markets, last week. BoI suggested that GDP growth for 2006 would come in at 6.5% and that growth would slow to 6% this year and to 5% in 2008.

"The main swing factor will be how rapidly house building adjusts to a level more in keeping with long-term demand. We estimate a soft landing or gradual decline over the next three years. From an investment perspective, the important question is what happens during 2008 and thereafter. We're pencilling in a couple of years of softer GDP growth before the economy recovers to trend. The SSIA effect will have washed through, returning consumer spending to a more normal pace of expansion," said HIM economist and senior fund manager, Fiona Hayes at the launch of the company's investment outlook for 2007 yesterday.

HIM is forecasting consumer spending growth of 6.8% this year and 3.3% in 2008 and is expecting - in line with most economists - two further 0.25% hikes in European Central Bank interest rates to 4% this year.

"We're confident our forecast is pretty secure. In Ireland, we expect consumer spending to be supported by SSIA releases - about 30% of those accounts set to mature this year to be spent - with late joiners more likely to be big spenders than those who were first in line to join the scheme," she added.

Hibernian's latest investment outlook also suggested that 2007 has the potential to be a bumper year for international merger and acquisition activity. It said that the British market could be a geographical M&A hotspot, with the banking and financial services sector an obvious source. HIMs senior investment manager, James Forbes said that M&A activity could spread to the Irish market also.

"At the moment, it would be easier to suggest the company's who will probably not be involved than those who could be," he said. "Barring Anglo Irish Bank and Ryanair, virtually any Irish company is a potential target for M&A activity," he added.

Irish consumer sentiment improves