Wednesday 26 April 2017

Growth: Steady economic recovery vital but by no means certain

Brendan Keenan

Brendan Keenan

THE success of the Government’s four-year plan depends on a steady economic recovery from 2012 – but the €6bn correction will allow for little growth next year.

National income (GNP) will rise just 1pc in 2011 after allowing for price changes – in line with the forecast from several outside economists.

Most of them have not yet produced forecasts for 2012.

The plan sees GNP rising 2.5pc that year, with total output – including that of foreign companies – growing by 3.25pc.

“Perhaps that is a bit optimistic, but not overly so,” Goodbody Stockbrokers chief economist Dermot O’Leary said.

“There is a huge element of uncertainty once you look that far ahead, but it’s not impossible.”

Over the four years, growth would average 2.75pc a year.

This is more pessimistic than the last medium-term forecast from the ESRI (Economic and Social Research Institute), which saw average growth of more than 3pc. But that was based on the original correction of €7bn, rather than the current €15bn.

“The figure for next year will be broadly accepted, but people are going to focus on those growth rates beyond that. But the markets have moved on to the banking crisis rather than public finances,” Davy Research chief economist Robbie Kelleher said.

Spending

Growth rates are critical to any plan to reduce deficits, to boost tax revenues faster than higher interest costs are driving up spending.

On Tuesday, ratings agency Standard & Poor’s said it sees no growth in the economy over the next two years.

Many Irish experts also take a more cautious view than the Department of Finance forecasts.

“Our forecasts would be more pessimistic than the Government’s,” Neil Gibson, Ireland economist at accountants Ernst & Young, said.

“There could well be a further contraction next year after what is a pretty brutal adjustment.

“But the Government may be right to put in a more rosy medium-term forecast, rather than loading more tax rises and spending cuts onto the economy to meet their targets.”

Government figures see personal spending improving only slowly, reaching 1.25pc growth by 2014.

Most of the overall expansion will come from an anticipated 4.5pc annual increase in exports and more than 5pc growth in investment, including housing.

On this basis, employment should rise by more than 1pc a year, helping to bring the unemployment rate below 10pc in 2014, the forecasts say

Irish Independent

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