IRELAND’s economy is expected to remain resilient and to keep growing faster than the EU average, the European Commission said today.
But it warned that the deferral of water charges to the first quarter of this year and the amount of money spent on Irish Water negatively affected the budget balance last year.
In its winter economic forecast, published this morning, Brussels slightly downgraded its growth projection for the Irish economy for this year to 3.5pc from 3.6pc just months ago.
The Commission said GDP growth looks resilient this year and next year, with the deficit set to drop to 4pc of the value of the economy in 2014, slightly higher than a previous forecast.
It said spending rose at the end of last year, mainly in health, and, unlike in previous years, it wasn’t offset elsewhere.
“On top of extra spending, the deferral of water charges to the first quarter of 2015 and the front-loading of capital injections in Irish Water also negatively affected the 2014 budget balance,” the Commission report said.
It also said a pension package for the workers of Waterford Wedgwood also helped pushed up the deficit.
The Commission said the deficit this year is expected at 2.9pc of GDP, within an EU target. However, if no new measures are taken, it expects the budget to rise to 3.1pc of GDP next year.
Economic growth, the Commission said, was driven last year primarily by net exports, including from pharmaceutical companies.
However it also flagged up the fact that some of the growth was related to so-called contract manufacturing, an issue also raised by several other bodies including the IMF and Central Bank.
It said household spending was expected to play a bigger role in propelling growth this year.
“The combined effect of rising wages and large falls in energy prices should provide further stimulus to consumption in 2015,” the Commission said.
“Unemployment is expected to decline, albeit more moderately than in 2014. Rising demand should dispel deflationary worries and inflation is forecast to be higher than the euro-area average, although uncertainty remains.”
Overall, the Eurozone’s economic prospects are brighter now than they were three months ago thanks to cheaper oil, a weaker euro and the European Central Bank's quantitative easing, the European Commission said.