Saturday 3 December 2016

Extra cuts likely after 'optimistic' forecasts, says IMF

Emmet Oliver Deputy Business Editor

Published 18/12/2010 | 05:00

ADDITIONAL cuts and tax rises beyond the planned €15bn may be needed in the medium term after the IMF described some of the Government's economic forecasts as "optimistic".

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However, the organisation does not see any need for additional cuts in 2011, even if growth is slightly lower than expected.

The Government is expecting the economy to grow by 1.75pc next year, whereas the IMF projects a 1pc growth rate.

The IMF comments are included in a new report based on its recent rescue mission to Ireland. It describes the Government as being "optimistic" about the amount people will save in the future. This savings rate is key to how much consumers will be spending in future years.

Deficit

The IMF said it expected the budget deficit to "fall more slowly" than envisaged by the Government, and by 2014 the deficit would be 4.8pc of everything Ireland produced. On the other hand, the Government was hoping to get it down to 3pc by then.

Writing about the 3pc target, which is demanded by the EU, the IMF says achieving such a target "is likely to need further measures in the medium term".

"The economy is expected to stabilise and begin to recover in 2011," the report said.

Speaking during a media briefing in Washington, Ajai Chopra, head of the Ireland mission, said it was hard to forecast a few years ahead in relation to Ireland.

"We'll need to see how this economy evolves,'' said Chopra. "There is a great deal of uncertainty about the growth outlook.

"We have put more conservative growth assumptions in," he added, in relation to the IMF's report.

The report said that "growth in trading partner countries, though moderating from 2010, will support a continued recovery of exports".

Investment spending was likely to keep reducing, albeit at a slower rate, said the IMF, as companies opted not to invest or renew their plant and machinery.

It added that unemployment was likely to persist at about 13.5pc in 2011.

The report made it clear that "political risk" was present and other parties in Government might take a different view to the current administration.

NCB Stockbrokers said the forecasts for Ireland from the IMF were baffling.

"The two parties who are actually providing the funds to Ireland have released forecasts days after the Department of Finance's own, which show lower growth rates, higher deficits and a higher debt to GDP ratio," it said.

"When the people who are currently supplying you with funds are forecasting the debt to GDP ratio peaking at 124.5pc, a full 20pc higher than the department forecasts, this is extremely damaging to credibility."

Irish Independent

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