EU keeps Irish growth forecasts unchanged at 1.1%

European Commission revises upward its estimate for 2012 growth from 0.4% to 0.7%

The European Commission has left its growth forecast for Ireland unchanged at 1.1% for this year.

The Commission has also revised upward its estimate for 2012 growth from 0.4% to 0.7%.

In its winter economic forecast, the Commission said Irish growth last year was stronger than expected, and was more broad based than net exports, with investment and private consumption also showing growth.

It said high frequency indicators, such as tax collections, retail sales, unemployment, property prices and purchasing managers indices all point to what it called a ''relatively resilient performance'' by the Irish economy.

It noted that market yields on Government bonds have fallen to their lowest level since April 2010, particularly after the liquidation of IBRC and the deal on the promissory notes.

That deal should improve the fiscal balance by 0.1% of GDP this year and 0.7% next year - excluding possible costs to the Government of any shortfall from the sale of IBRC assets by the liquidator.

The fall in sovereign borrowing costs has also led to falling yields on bank bonds, and the Commission said the recent sale of unguaranteed bonds by Bank of Ireland and AIB, and the Government's sale of convertible contingent debt in Bank of Ireland underscored what it called quickly improving market sentiment.

It said household deleveraging may moderate slightly this year, which could help to improve prospects for personal consumption. But it added that a lasting revival of the domestic economy is crucially dependent on resolution of non-performing loans.

The Commission said the Government's deficit will be 7.3% this year, falling to 4.2% next year. That is better than the target figures for Budget 2013 in both cases. However Ireland continues to have one of the highest Government deficits in the EU and the euro zone, where the deficit is projected at 2.7% this year.

It said the Government debt will peak this year at a ratio of 122%, and will then start to decline. Moving to a primary surplus (a surplus of income over expenditure before debt service costs are taken into account), and a pick up in growth will arrest the debt dynamics, it added. It projected growth of 2.2% for 2014.