Thursday 22 March 2018

Government should refrain from using improved finances to stimulate economy - says think-tank

(Stock photo)
(Stock photo)

Sean Duffy

The Government should refrain from using its improved financial situation to further stimulate the economy, according to a leading economic think-tank.

The Organisation for Economic Cooperation and Development (OECD) has said that it expects the Irish economy to remain “robust for the remainder of this year and next year".

The OECD says that investment and exports will remain solid and support strong employment growth.

Household consumption is expected to keep growing, spurred by higher wages and forecasted government tax cuts.

However the OECD cautions that the Government needs to stick to its medium term target of balancing the budget. It says any windfalls attained from low interest rates and improved government revenues should be used towards paying off the national debt.

The organisation says that structural reforms being implemented should focus on getting more people back into the workforce.

The reports notes that productivity in Ireland has been declining in recent times, but adds that trend is likely to turn around owing to large-scale multinational investment in knowledge based capital.

The OECD also asserts that the European Central Bank’s QE programme is having little effect on credit lending. The report gives the high levels of non-performing bank loans as the main reason for this. It is noted that credit lending rates for SMEs are among the highest in the EU.

The report also states that the housing shortage could see prices spike again. It is forecast that the tightening of the labour market will lead to a rise in inflation.

While the country’s economic outlook appear robust, the OECD also cites significant risks, not least to the country’s export sector, which is wholly dependent on external factors.

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