Monday 22 January 2018

Noonan hints at softer Budget as growth rate beats forecasts

Finance Minister Michael Noonan. Photo: Douglas O'Connor
Finance Minister Michael Noonan. Photo: Douglas O'Connor
Donal O'Donovan

Donal O'Donovan

Brexit has so far failed to dent the Irish economy with Michael Noonan yesterday indicating that a softer budget in 2018 is potentially now on the cards.

The Finance Minister will today formally set out new estimates showing economic growth this year is running well ahead of the forecast when this year's Budget was set back in October.

"There will probably be some additional funds available from the extra growth," he said at an event in Dublin yesterday.

Department of Finance forecasts for economic growth have been lifted to 4.3pc this year - up from the previously expected 3.5pc. Growth in 2018 is now tipped to be 3.7pc of gross domestic product instead of 3.4pc.

The big change is Brexit, which officials had thought would have hit the Irish economy harder by now, the minister said.

"The adjustment made for Brexit didn't come through," he told reporters at an event at the Central Bank organised by the European Investment Bank.

Mr Noonan also indicated that financial support from the EIB could help fund key infrastructure projects including a Cork-Limerick motorway, a Dublin to Derry motorway and a Metro scheme in Dublin city.

The latest growth forecasts will be presented to the rest of the Government today. They have been prepared for the draft 2017 Stability Programme Update, part of the EU's budget monitoring system. The full updated document is expected to be published ahead of the minister's appearance in front of the Oireachtas Budget Oversight Committee on Thursday.

Announcing the revisions yesterday means the news is going out to investors before the National Treasury Management Agency is due to borrow €1.25bn on the markets tomorrow - and could potentially help reduce borrowing costs.

Asked if better growth will see him open the budgetary purse strings, the minister said the overall effect would not be large. "There are two problems at budget time.

"The first problem is that you actually have the money and the second problem is, even if you have the money, would you be allowed spend it under the fiscal rules," he said.

"It (higher growth) is not going to make a lot of difference to fiscal space but, yes, it probably throws up buoyancy of taxation all right that will be useful," he said.

The department hasn't yet recalibrated the numbers for 2018, he said.

"We'd hope that as the year goes by, it may loosen out, but nothing dramatic. We won't be throwing our hats in the air," Mr Noonan (pictured) said.

A key factor in the latest estimates was higher than expected growth in the economy at the end of last year.

After a lull in the immediate wake of the June Brexit vote,activity picked up rapidly in the last three months of 2016 as investors and consumers appeared to shrug off any adverse impact from the referendum.

"We probably ended 2016 better in terms of the vital statistics, so we started further up the road than we'd thought in January," the minister said.

Despite that, Mr Noonan warned that risk "is tilted towards the downside".

At home, the risks include potential loss of competitiveness and housing pressures, while abroad the principal risk for Ireland is Brexit with the potential for a US border tax also a concern.

Irish Independent

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