Central bank presses for detail as wealth plunges
Outline of proposed Budget measures would encourage certainty and kickstart spending
Published 30/07/2011 | 05:00
THE chief economist of the Central Bank yesterday called on the Government to lay out its plans for future budget changes in greater detail in an effort to encourage spending.
Meanwhile the collapse of the Irish economy has seen €281bn of wealth, or nearly twice GDP, destroyed since the third quarter of 2008, figures show. Households account for nearly €140bn of the total lost since then, the Central Bank's report for the third quarter finds.
Maurice McGuire said the uncertainty that had gripped consumers in recent years needed to be ended one way or another, and that more detail would allow consumers to plan ahead and start spending again.
"The more you can say about the adjustment, and the more details you can give, the more convincing it is both to outsiders and people in the country.
"They [consumers] will be able to plan better if they know what will happen to their income over the next couple of years and the earlier the decisions can be made, the sooner confidence can return."
Mr McGuire was speaking as the Government revised down its growth forecast for the Irish economy, with the sluggish domestic market weighing heavily on the country overall.
According to the report, Gross Domestic Product (GDP) will grow by only 0.8pc this year -- a slight decrease on the 0.9pc it was previously expecting.
The bank blamed the lack of domestic spending for the revision, with consumers still not spending in the numbers required to get the economy growing in any meaningful way.
Gross National Product (GNP) -- a measure of goods and services produced by the country, excluding foreign companies -- is expected to contract by 0.3pc this year. The bank had previously predicted flat GNP this year.
Despite the slight decline in previous forecasts, the economy is still on track to post modest growth this year, with the export sector playing a key role.
Ireland's competitiveness continues to improve, with wages here more or less unchanged this year. However, more is needed, said the bank.
"Two separate points are worth noting here. First, the technical point that the overall indicators of improvements in unit labour costs may be distorted by the sharp contraction of low-productivity sectors and the expansion of more high-productivity ones.
"This shift in activity is a positive one, but it means that the competitiveness improvement within most individual sectors is less than that indicated by the overall measure.
"Second, there is still a need for further structural reform aimed at enhancing productivity growth, by introducing more competition into certain private services sectors and by reforming the public sector to increase its efficiency.
"These measures will also help ... to move the economy on to a path which will take it out of its currently over-indebted situation as rapidly as possible."
The collapse of the Irish economy has seen €281bn of wealth, or nearly twice GDP, destroyed since the third quarter of 2008, with households accounting for nearly €140bn of the total lost since then, the report finds.
Meanwhile, Ireland may exceed its target of reducing its government deficit to 10.6pc of GDP this year, Finance Minister Michael Noonan and Central Bank Governor Patrick Honohan said.
In a letter to the EU and IMF, the two men said Ireland was "on track to observe, and indeed overachieve, the programme target on the overall deficit for 2011 as a whole of 10.6pc of GDP".
We have met and "in some important cases exceeded" our commitments under the aid programme, they wrote. Ireland has requested its third instalment of €5.5bn from the EU as part of its aid, the Government said.
Maurice McGuire, director of economic services (centre), listens to Mark Cassidy, head of monetary policy and international relations, at the announcement of the Central Bank of Ireland Quarterly Bulletin from August 2011 in the Central Bank, Dublin, yesterday.