The European Commission’s 2020 review of the economy here has found the State is one of nine countries that are experiencing “imbalances” and warned that the budget is under threat from changes to the way companies are taxed globally as well as Brexit.
The report found that while public finances have been improving as the State has now run two successive budget surpluses and debt has fallen to 63.5pc of gross domestic product, risks remain.
“Spain, Portugal, Ireland and Croatia are characterised by a combination of vulnerabilities linked to high private, government and foreign debt,” the Commission said in its winter semester report published today.
The Commission said that it expects the economy to grow by 3.6pc this year and by 3.2pc in 2021.
While the headline economic numbers for the State have shown a dramatic improvement since the depths of the crisis and Ireland has topped Eurozone growth leagues since 2015, vulnerabilities remain in the labour force, housing and lack of progress towards environmental sustainability.
The report also said that despite some improvements, Ireland’s tax rules were still used for “aggressive tax planning purposes” specifically on withholding taxes and it warned that the anti-money laundering framework was still inadequate.
Strong economic growth since 2014 has finally started to deliver wage rises for workers and data released yesterday showed weekly pay rose 3.5pc in 2018, but there are gaps, the Commission said.
“Households’ real disposable income per head continues to grow, but remains slightly below pre-crisis levels,” the report said.
Despite the wage gains those not already on the housing ladder and those renting are under pressure.
“The fall in house prices at the top end of the market has brought annual residential price inflation down to levels not seen since 2013. Prices in the rental sector are still growing fast, due to insufficient, though increasing, housing supply,” it said.
“Housing scarcity remains a pressing issue, including rising homelessness due to shortages of social housing,” the report said.
As the economy has neared full employment, skill shortages have started to emerge and the State lags behind when it comes to the number of women participating in the labour force, as well as the low general level of skills in the workforce.
Another major weakness is the environment and C02 emissions are still rising, while growth in agriculture has also boosted greenhouse gases.
“Ireland has not broken the link between greenhouse emissions and economic growth and has been consistently lagging in implementing climate-related policies and measures,” the Commission said.