Business Irish

Monday 22 January 2018

Better to get pain 'over and done with', say economists

NCB says economy needs to undergo serious adjustment to put country on better footing

Brendan Keenan

Brendan Keenan

THE Government is right to set a €15bn target for the Budget correction, even if low growth means the EU deficit targets are not met, economists at NCB Stockbrokers said.

They expect annual growth to average 2.1pc from now to 2014. Allowing for the impact of the €15bn adjustment, NCB have marginally reduced their economic forecasts for output (GDP) next year to a median figure of 1.6pc.

This is below the forecast the Government is expected to make as the basis of its plan. The ESRI sees cumulative growth of 4.25pc over the next two years, but argues that a €15bn fiscal correction over four years is too severe.

Brian Devine, chief economist at NCB Stockbrokers, said that, while its growth may be lower than the ESRI forecasts, the Government should stick with the €15bn correction.

"It is very difficult to say what economic growth will be over the next four years, because the forecasting models are based on much higher growth rates in the past," he said. "The relation of tax revenues to economic growth tends to break down in these circumstances.

"It's going to be difficult to achieve the 3pc target by 2014, whatever we do. But I think it is right to tackle the bigger amount in the first year.

"The reality is that we have to take this pain at some point and it is better to have it over and done with," Mr Devine said.

The NCB forecast sees the deficit at 3.1pc of GDP by 2014. The national debt level is forecast to peak in 2013 and fall to 105pc of GDP and 130pc of GNP in 2014.

"Now we need to see that the €15bn figure isn't simply inserted in the Budget as a single line 'additional measures', but is actually broken down into specifics as to where the cuts are to come from," NCB said.

"While it is perverse to say that it is good news when the Government is taking out nearly 10pc of GDP in fiscal consolidation measures, the reality is that regardless of outcomes, the action needs to be taken.

"The Irish economy is characterised by a public sector that is overleveraged, and de-leveraging; a private sector that is overleveraged and de-leveraging, and an economy that is vulnerable to both currency and interest rate movements.

"The bottom line for the period to 2014 is that the economy needs to undergo a serious adjustment. The sooner this occurs; the better footing the Irish economy will be on for the second half of this decade," NCB said.

Irish Independent

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