Bullish Irish Central Bank hikes growth forecasts again

DUBLIN, Jan 26 (Reuters) - Ireland's central bank on Friday hiked its 2018 economic growth forecasts and predicted a faster rate of expansion for next year than the government has penciled in as stronger demand for exports bolsters a strong domestic recovery.

Ireland's economy has been the best performing in Europe since 2014 and the central bank sees that momentum continuing, with gross domestic product set to grow by 4.4 percent this year - up from its previous forecast of 3.9 percent - and by 3.9 percent in 2019.

That puts the bank's forecasts significantly ahead of the finance ministry, whose figures form the basis of the government's budget policies and which in October predicted GDP growth of 3.5 percent for 2018 and 3.2 percent for 2019.

While the volatility of Irish GDP has called into question its relevance in accurately measuring activity - the bank sees growth of 7 percent last year after another statistical distortion in the third quarter - it said a range of data showed that the real economy was performing very strongly.

It said growth had been driven by a rapid labor market recovery - where unemployment is forecast to fall to 5.2 percent next year from 16 percent in 2012 - meaning Ireland is not repeating the credit-fueled expansion of the "Celtic Tiger" years, which led to a devastating economic crash a decade ago.

"The recovery in consumption in recent years has been driven by the recovery in income, so in contrast to previous periods, for example, the boom in the early 2000s, this is not an asset- driven phenomenon," John Flynn, the central bank's head of economic analysis, told a news conference.

Reiterating that the risk of the economy overheating must be monitored, the central bank said it did not think that was happening at present with annual wage growth set to gradually increase to 3.4 percent by 2019 from 3 percent last year.

It cautioned that ongoing downside risks, particularly regarding Brexit, persisted but that the possibility of a more favorable future trade deal between Britain and the EU that would limit the fallout for Ireland had increased.

"If that is the case, then the risks have slightly moved in a benign way, but there is still considerable uncertainty," said Mark Cassidy, the central bank's director of economics and statistics.

"I don't think you can rule out any of the options and under the most adverse scenarios, the implications for employment, incomes and growth in the economy will be negative and material."

(Reporting by Padraic Halpin; Editing by Peter Cooney)