Ireland set to hike 2021 GDP forecast to 4.5%

DUBLIN: Ireland's finance ministry will more than double its forecast for 2021 gross domestic product growth to 4.5% on Wednesday, a source familiar with the process said, with stronger exports set to offset weaker than expected consumption growth.

Ireland's last forecasts six months ago that predicted GDP growth of 1.7% were based on the assumption of a no trade deal Brexit - a scenario that has since been avoided - and that a COVID-19 vaccine would not be widely available.

The updated numbers to be released later on Wednesday assume the planned acceleration of the vaccination programme and easing of lockdown measures this quarter will lead to an economic recovery over the second half of the year and into 2022.

Ireland has been under a strict lockdown since late December that has only begun to be slowly unwound, a scenario the finance ministry did not envisage last October.

As a result modified domestic demand, a measure that strips out some of the ways Ireland's large hub of multinational firms can distort GDP, is forecast to grow by 2.5% and not the 4.9% previously thought, the source said.

However, it is set to surge by 7.5% next year, contributing to GDP growth of 5%.

The faster than expected GDP growth will also cut Ireland's forecast budget deficit to 4.7% of GDP this year from an estimated 5% in 2020 before falling more sharply again to 2.8% next year.

A downside scenario will also be included in the update that predicts GDP growth would be almost 1 percentage point lower this year and 2.5 points lower next year if the current lockdown has to remain in place for a prolonged period.