Tuesday 25 October 2016

Immigrants will outnumber those leaving next year - ESRI

Published 18/06/2016 | 02:30

ESRI's Kieran McQuinn sees higher growth potential
ESRI's Kieran McQuinn sees higher growth potential

The potential for growth in the Irish economy is being underestimated, including by European institutions because they miss the positive impact of migration, according to research from the ESRI.

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Net migration will be flat in 2016 - meaning the number of people moving into the country cancels out the number leaving.

However, the trend will turn positive next year for the first time since the financial crash, according to pre-Budget research presented by the ESRI yesterday. The positive migration swing could quickly be as big as 30,000 a year.

The enlarged labour pool would support significantly higher growth rates, with implications for the so-called fiscal space, according to Kieran McQuinn, associate research professor at the Economic and Social Research Institute (ESRI).

Forecasting the fiscal space, a term for the financial leeway available to governments in a budget year that can go to lower taxes or increase spending, is notoriously tricky.

Conflicting views on the issue led to a major political row during the 2016 general election.

But, the concept is important in preparing budgets within the confines of the pan-European rules introduced in the wake of the euro crisis.

"Greater population means your fiscal space goes up, but at the same time, if the housing market ratchets up as a result there is a danger of (the economy) overheating," Kieran McQuinn said. Researchers at the ESRI reckon house building will hit 13,500 this year and 17,000 in 2017.

That's well below the 25,000 a year needed to meet current demand.

However, if construction gathers pace to meet demand, especially of labour intensive houses, the effect could quickly lead to overheating, Kieran McQuinn said.

Rapid growth will force the Government to consider contractionary budgets, with lower spending, even in good times, to guard against overheating.

A contractionary budget in a time of plenty is a "difficult sell" politically, he said.

But without it the risk is a repeat of the mistakes of the boom.

Irish Independent

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