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Ireland's economy set to grow 4.7 percent this year

Ireland's economy set to grow 4.7 percent this year
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Ireland’s economy is forecast to expand by 4.7 percent this year, according to the country’s finance ministry.

That is in contrast to last year’s GDP growth in Ireland, which was just 0.2 percent.

It also bucks the trend for the eurozone where the overall economic recovery has stalled.

Irish employment is up, exports are rebounding and consumer sentiment this week hit a seven-year high.

The government says the upturn in the economy and better-than-expected tax receipts, mean there will be no new tax increases or spending cuts in the budget for the year ahead.

“There is clear evidence that recovery is gaining momentum, led by the external sectors,” John McCarthy, chief economist at the department of finance, told a parliamentary committee.

“What’s more important is that there is now concrete evidence that recovery is broadening and we are seeing domestic demand make a positive contribution to growth for the first time since 2007, so people will feel it in their pockets.”

The brighter Irish outlook comes as the International Monetary Fund cut its global economic growth forecasts for the third time this year, warning of weaker growth in core eurozone countries.

“The one cloud on the horizon is the euro area, where activity seems to have stalled,” McCarthy said.

Property bubble worries

The news comes in the same week that Ireland’s central bank proposed restrictions on how much banks can lend to home buyers.

It is a bid to reduce the risk of a new property bubble forming as prices recover rapidly from a crash.

A combination of reckless lending and lax regulation during Ireland’s “Celtic Tiger” era helped fuel a property bubble that dragged the country into an international bailout after it burst and left the surviving banks in need of expensive state rescues.

Property prices in Dublin were up by 25 percent year-on-year in August, although they were still 41 percent below their pre-crisis peak.

The central bank said it was appropriate to bring in limits on new lending at high loan-to-value (LTV) or loan-to-income (LTI) ratios.

“Ireland has experienced a devastating property bubble that was triggered by excessive lending by banks and excessive borrowing by households. It is essential that we avoid a repetition of this,” central bank deputy governor Stefan Gerlach told reporters.

The proposed measures will require banks to restrict lending above 80 percent of the value of a home to no more than 15 percent of the aggregate value of all housing loans.

They will also restrict lending above 3.5 times the borrower’s gross income to no more than 20 percent of that aggregate value.

The proposals are contained in a consultation paper that banks have until December 8 to respond to.

The rebound in prices is being driven by a lack of supply and the central bank has warned that a protracted delay in addressing housing shortages, particularly in Dublin, has the potential to put prices on an unsustainable path again.

with Reuters