Central Bank economist urges voter caution when electing new government given risks to economy
The Central Bank’s chief economist has urged voters and political parties to be cautious and prudent given the extent of the risks facing the economy.
Gabriel Fagan called for more than the minimum required to cut the debt and deficit given the vulnerabilities he says are facing the Irish recovery.
Despite the global markets turmoil and concern of a slowdown in China, the bank gave an upbeat assessment of the economy overall, saying the pick-up in spending and continuing strength of employment growth confirms that a “convincing” recovery is well established.
The bank’s latest quarterly bulletin – the first since Governor Philip Lane took office – said the performance of the economy reflects a recovery which is broad based and has increasingly come to be driven by a significant rebound in domestic demand.
Growth last year as measured by GDP was estimated at 6.6pc, and is forecast to ease to 4.8pc this year and 4.4pc in 2017, it said.
But Mr Fagan said that despite the strong numbers, there are significant risks, from both the high, although declining, levels of both public and private debt, and the threat posed to the global economy.
He repeatedly urged prudence, and said his call wasn’t confined to politicians.
“It’s a message not just to parties; it’s a message to the country as a whole, to the voters and to society as whole,” he said.
“We’ve done a lot of progress; tremendous achievements have been made on the fiscal side. But be careful, there are risks out there, there are vulnerabilities there, so be cautious and be prudent. That’s essentially our message.”
Mr Fagan said if there is scope, more should be done to slash both the debt and deficit to build up “as many buffers as can be built up”.
“If it is at all possible, given the risks that the economy faces, to go for a more ambitious, a faster pace of deficit reduction, which would imply a faster pace of debt reduction,” he said.
“Serious consideration should be given to using that [fiscal] space, given the vulnerabilities that the economy faces.”
Oil extended its slide below $30 a barrel today and Chinese stocks took another plunge amid concern about the country’s slowing economy and confusion over China’s central bank’s foreign exchange policy.
Luca Onorante, the Central Bank’ of Ireland's acting head of monetary policy, said there is considerable uncertainty facing the global economy.
“There is uncertainty from the financial side, there is uncertainty about the numbers, there is uncertainty about what the connections are between a change in monetary policy in the United States and to what extend it may affect other emerging market economies, especially those that have a high level of debt in dollars,” he said.
“This is a global phenomenon, but the numbers as we have shown them today are subject to a clear downward risk.”
The bank’s latest quarterly bulletin, despite the risks posed, states that Ireland is going through a period of “exceptionally” strong growth. The bank said outside factors have also contributed to the strong recovery.
“In particular, the stimulus to incomes from an employment-rich recovery has been augmented by both the emergence of wage growth and the further boost to purchasing power from lower energy prices,” the bulletin said.
“Growth has also benefited from a more benign policy environment, reflected in both the easing of the pace of fiscal consolidation and continued favourable financial conditions, while additional support has been provided by the ongoing improvement in household and firm balance sheets and continued favourable financial conditions in Ireland’s main export markets.”
Rising employment has helped stimulate a strong pick-up in consumer spending, which last year grew at its fastest rate since 2007.
The bulletin said domestic demand is expected to be the main driver of growth over the coming period, with a robust outlook for both consumption and investment spending.
Domestic demand is expected to grow by 5pc this year, before easing to 3.6pc next year.
The bank said the unemployment rate is forecast to drop to 8.2pc this year, and 7.4pc next year.