Tuesday 22 January 2019

Experts warn growth will slow - but recovery is still on track

The ESRI is Ireland's leading independent think thank on the economy
The ESRI is Ireland's leading independent think thank on the economy

Sean Duffy

IRELAND'S economic recovery is set to continue in the coming years but the breakneck growth rates recorded since the end of the recession are set to moderate over the next decade, according to one of the country's most prominent think thanks.

This week saw the publication of the Economic Outlook for Ireland between now and 2025 from the Economic and Social Research Institute (ESRI).

The ESRI is Ireland's leading independent think thank on the economy and provides valuable research insights for Irish policy-makers.

The ESRI report stated that growth in the country is set to slow to 3.7pc between 2016 and 2020. That represents a substantial slowing for the economy compared to the past four years; growth for the period between 2011 and 2015 came in at 7.1pc. Looking further ahead, the ESRI expects Irish GDP to slow to 3.2pc after 2020.

The ESRI also foresees a slowing in the rate of exports over as increased pressures on the sector from the Brexit vote are likely to be felt by the sector.

The body predicts that the contribution of exports to the country's GDP will slow to 6pc over the next four years, having grown by over 10pc in the 2011-2015 period.

The report forecasts wage growth will match the projected GDP forecasts, with workers expected to add around 3.7pc overall to their wage packets between now and 2020. Wages in the civil service are expected to rise by 3.5pc in the same period, and then by a further 2.8pc from 2021 to 2025.

The ESRI says that Government spending as a percentage of GDP is expected to rise significantly - to 7.2pc over the next four years - before slowing to 3.1pc between 2021 and 2025.

The forecasts show that Irish growth will outstrip both the US and UK economies, albeit at a much slower rate than that seen in recent years.

Ireland will also exceed the average EU growth rate of 1.5pc, according to the authors. Unemployment is expected to remain at over 7pc for the next three years, before contracting to an average rate of 6.4pc between 2021 and 2025.

It is anticipated that the Government's debt burden will continue to decrease as a percentage of GDP, with the figure expected to drop to 60.8pc by 2025.

At the height of the financial crisis in 2013, Ireland's debt to GDP ratio was more than double that, at 120pc.

"It is a pretty bullish report from the ESRI. They do have a good track record when it comes to forecasting, but the trouble at the moment is that we are in a really difficult position with so much external uncertainty," said Alan McQuaid of Merrion Capital Group.

"We are facing a tumultuous year ahead both with Brexit and further upheaval expected in Europe. We are a small open economy and are at the mercy of outside events.

"By the time we get to 2025, we could be living in a very different world," Mr McQuaid added.

The report also emphasises the importance of foreign direct investment (FDI) to the economy. The research shows that employment in the areas of IT, pharmaceuticals and financial services is almost entirely dependent on firms from outside Ireland.

It stated possible changes to taxation rules through the Common Consolidated Corporation Tax Base (CCCTB) and the OECD's Base Erosion and Profit Shifting (BEPS) could shrink Corporation Tax revenues by around 5.7pc.

Irish Independent

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