Irish house prices are to increase on average by 5pc this year while the country’s gross domestic product (GDP) is also to increase by 5pc, according to Merrion Stockbrokers’ Quarterly Economic Outlook.
The report expects an average unemployment rate of 8.3pc in a year where a British exit from the EU (Brexit) remains one of the biggest risks to the economy.
Merrion economist Alan McQuaid said a Brexit could reduce bilateral trade between Ireland and the UK by 20pc or more.
“The UK is more important as a source of imports to Ireland than it is as a destination for Irish exports, and any barriers to trade would increase prices of UK imports to Ireland, pushing up inflation in the process,” Mr McQuaid said.
The rate of Ireland’s GDP growth is expected to slow this year from the 7.8pc surge in 2015 amid murmurs that the Celtic Tiger has been reborn.
However, Merrion believes that if Britain votes in favour of a Brexit it would have “serious negative implications” for Ireland, which would reduce GDP growth.
The improved economic backdrop, particularly in relation to the labour market, will provide a base for improving house prices according to Merrion.
The report says house prices should increase despite credit restrictions currently in place as well as a jump in the number of planning permission applications.
Average Irish house prices increased by 12.9pc in 2014 and a further 10.6pc in 2015, however that rate is expected to slow to 5pc this year.
The house price forecast comes after a dip in the number of approved mortgages for the 12 months ending in February.
New figures from the Banking and Payments Federation Ireland show a fall of 8.5pc in approved mortgages in the year. However, the mortgage trend doesn’t take into account house buyers who are paying in cash.
Mr McQuaid said the current political backdrop poses a major threat to the Irish economy that could “choke the recovery”.
“There is no room for complacency and the country needs stable government not “egotistical” politicians who are only concerned about their own welfare and self-interests,” he said.
Outside of house prices the Merrion economist expects inflation to remain largely subdued over the course of 2016.
“Only a modest increase of 0.2pc is envisaged for 2016 unless oil prices suddenly ratchet higher. However, the cost of services like insurance and education look set to continue to rise sharply,” he said.
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