Davy chief economist predicts 2.5pc growth in Irish economy in 2014

Irish GDP is set to grow by 1pc this year and by 2.5pc in 2014, according to Davy.

The financial advisory company is more optimistic than the majority of other forecasters, including the Department of Finance, which last month revised downwards its projection for growth in 2014 from 2.4pc to 1.8pc. Last week, EY said it expected the Irish economy to contract by 0.2pc this year and to grow by 1.6pc next year.

However, Davy said a range of indicators signify that Ireland is set for a robust recovery. The company also predicted a re-rating of Ireland’s credit worthiness by Moody’s as an inevitable and positive milestone for Ireland.

Davy analysts pointed to a re-rating of Irish stocks in 2013, a four-fold increase in IPOs and increased international appetite for capital raisings by Irish corporates as signs that international institutional investors are betting strongly on an Irish recovery.

The company said key factors underpinning demand for Irish stocks include: Ireland’s recovery prospects; attractive valuations and strong earnings performances by many Irish companies; and improving economic data and a more stable political backdrop.

Stocks predicted to outperform include several with strong Irish associations – such as Aryzta, UDG Healthcare and Smurfit Kappa – as well as Deutsche Post DHL, St Gobain and Travis Perkins. Stocks predicted to benefit disproportionately from an Irish recovery include Bank of Ireland, CPL, FBD and Irish Ferries owner, ICG.

“Ireland is on track for a far more robust recovery than is evident from economic data that is distorted by the pharma patent cliff which has little material impact on employment or the real economy,” said Davy chief economist Conall MacCoille.

“Key indicators of a dramatic turnaround in Ireland’s fortunes include four consecutive quarters of employment growth, expansion of the services sector,  and a much earlier than anticipated recovery in construction and industry.

“Davy is predicting that 2013 will mark Ireland’s first full calendar year of expansion in GDP (+1pc) since the recession began and that GDP growth in 2014 will bounce back to 2.5pc. The biggest risk to a sustainable recovery is that public spending remains stubbornly high and that a combination of our exit from the bail-out and an election in 2015 may mean reduced fiscal discipline, thereby locking Ireland into a high tax, high spend economic cycle.” Source: Business and Leadership.