Saturday 3 December 2016

Ireland sees 7pc GDP growth but little risk of over-heating: Howlin

Conor Humphries

Published 10/12/2015 | 07:04

Labour’s Public Expenditure Minister Brendan Howlin
Labour’s Public Expenditure Minister Brendan Howlin

Ireland's economy may post "spectacular" growth of more than 7pc this year but there is little danger of it overheating or of the government over-spending, a senior minister told Reuters on Wednesday.

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The weak euro and years of pent-up demand helped make Ireland the fastest growing economy in the European Union last year with growth of 5.2pc.

Now bumper corporate tax returns and a decline in the unemployment rate to below 9pc have convinced the government the economy may return to 7pc growth for the first time since the Celtic Tiger era.

"There is every likelihood it ... may well be higher than (the current government forecast of) 6.2pc at the end of this year," minister Brendan Howlin said, adding the final figure could be 7pc or above.

"It's not unusual for an economy that fell as far as ours did to have an initial bounce-back that is little short of spectacular," he said.

The Irish government was criticized by some economists in October for increasing planned spending this year by €1.5bn after corporation tax receipts came in far higher than forecast.

But Howlin dismissed as "overly cautious" the critics' warnings that the country should limit spending increases and instead pay back more debt in case the growth rate drops off.

Even after the extra spending, the government is forecasting a budget deficit next year of 1.7pc, almost half the 2015 target under Ireland's bailout.

"People talk about overheating as if we had an economy working at full capacity. We certainly haven't," Howlin said, citing unemployment at close to 9pc and little sign of wage inflation.

Ireland's small flexible economy can "shift our footing very quickly" if circumstances change, he said.

INFRASTRUCTURE SPEND

Howlin said Ireland has been one of several European Union countries lobbying the European Commission for some flexibility on limits to infrastructure spending.

While other countries are seeking room to spend on dealing with the refugee crisis, climate change and new security challenges, Ireland is looking for more space to spend money on infrastructure to ensure growth spreads evenly through the country, he said.

He cautioned that the debate in Europe over additional spending "will take a couple of years to work itself out," and would be influenced by the results of a number of upcoming national elections.

Howlin's center-left Labour Party and its larger center-right coalition partner Fine Gael are seeking re-election in a vote due by April and the parties have promised fiscal responsibility will be at the center of the campaign.

"The calling card we will present to the Irish people is a continuation of prudence and there isn't any question of putting anything at risk," Howlin said.

But while Labour has in recent years been more in favor of spending increases than tax cuts, Howlin said there would be no red lines on this issue in negotiating a new program for government if re-elected.

Reuters

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