Irish central bank increases growth forecasts for 2015, 2016

DUBLIN, July 29 (Reuters) - Ireland (Other OTC: IRLD - news) 's central bank increased its growth forecasts for the economy on Wednesday, saying gross domestic product (GDP) would rise 4.1 percent this year and 4.2 percent in 2016 on a further strengthening of domestic demand.

That compared to GDP growth forecasts of 3.7 percent and 3.8 percent three months ago and follows growth of 4.8 percent last year, when the economy's turned in its strongest performance since 2007 and showed the fastest growth in the European Union.

GDP data for the first quarter was due to be published on Thursday, but the central bank said the signs emerging from a broad range of other figures point to an increase in the pace of domestic demand growth in the first-half of this year.

It sees personal consumption growing by 2.3 percent in both 2015 and 2016 - supported by similar levels of wage growth in both years - while investment will continue to rise sharply, with construction activity bouncing back after a property crash.

The central bank, which has raised concerns about the slow response to housing shortages, said it expects 13,000 new units to be built in 2015 and 15,000 in 2016, up from an average of fewer than 10,000 each year since 2011 but less than half the 30,000 per year the government says is required to meet demand.

The bank said an EU-set target of cutting the budget deficit to below 3 percent of GDP this year would be comfortably met, and again urged the government to resist the temptation to consume unanticipated surplus revenues.

The government has received similar warnings that budgetary plans risk a return to the ill-fated policies of the past from the country's independent fiscal watchdog, but has said it will press ahead with plans to increase spending and cut taxes before elections next year.

"The strong growth outlook implies that there is no need for fiscal policy to support economic activity and, importantly, also provides an opportunity to move ahead with fiscal consolidation and debt reduction," the central bank's quarterly report said.

"Indeed, with strong growth in prospect, it is important that the fiscal stance does not exacerbate cyclical pressures. Ireland's past experience demonstrates the damage that can be caused." (Reporting by Padraic Halpin; Editing by Louise Ireland)