Tuesday 21 May 2019

ESRI predicts 1.8pc growth this year, urges Government to continue with austerity

ESRI economist John FitzGerald. Photo: Steve Humphreys
ESRI economist John FitzGerald. Photo: Steve Humphreys

Colm Kelpie

The Economic Social and Research Institute has predicted growth in the economy of 1.8pc for this year.

THE ESRI has urged the Government to stick with austerity as the think tank warned Irish growth was dependent on the revival of the international economy.

Yesterday's warning came as new data showed that growth in the eurozone shrank more than expected in the first three months of the year with France slipping into recession and Germany eking out minimal growth.

The Economic and Social Research Institute said gross domestic product would expand 1.8pc this year and improve by 2.7pc in 2014, reflecting expected stronger growth in exports of goods and services and a boost in domestic demand.

But the economic think tank said the forecast was predicated on the European economy returning to growth next year, with a less positive outlook predicted if that doesn't happen.

The growth projections are more ambitious than the Department of Finance's, which expects the economy to grow by 1.3pc this year and 2.4pc next year.

The ESRI said the Government must stick with its budgetary process, even though it expects that the Government's targets will be beaten. David Duffy, ESRI research officer, said easing off could push the adjustment period out for longer.

"Even at the end of the programme there's still a deficit there, so you still have to borrow," Dr Duffy said.

"Taking those factors into account, we are of the view that you stick with the process. Get the deficit down as soon as possible so you're not taking money out of the economy for a longer period."

His comments echoed those of both the Fiscal Advisory Council and the Central Bank, which have both urged the Government to stick with austerity.

Key forecasts from the ESRI's spring economic commentary include:

- Investment will grow 1.6pc this year and 5.5pc next year.

- Exports will grow 3pc this year and 5.3pc next year.

- Imports will grow 2.3pc and 4.3pc next year.

- Unemployment will be 14.2pc in 2013 and slip to 13.9pc in 2014, largely as a result of emigration.

- General government balance will be 7.2pc of GDP in 2013 and fall to 4.6pc in 2014.

- Building and construction will shrink by 0.4pc this year and increase 5.7pc next year.

The ESRI also said that emigration this year would hit 32,000 and drop to 22,000 next year. This is down from 34,400 in 2012.

The body said the deal on the Anglo Irish promissory note represented a "significant alleviation" of short-term funding and should enhance debt sustainability.

Meanwhile, a separate paper on the effect of so-called redomiciled PLCs on GNP shows that large retained earnings of the companies raise GNP – the base on which Irish contributions to the EU Budget are calculated.

Author John FitzGerald said that while the companies confer no significant benefit on the Irish economy in terms of employment or taxes, they give rise to a higher EU budgetary contribution.

The benefits of the retained profits of the redomiciled PLCs are attributed to their foreign owners, and have no benefit to the Irish economy, the paper found.

Irish Independent

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