Spending to pick up on the back of jobs growth, says ESRI
THE economy is seeing strong growth in employment which will boost personal spending next year, the Economic and Social Research Institute (ESRI) has said.
The think-tank said growth in employment this year could be in the range of 2pc, with further growth expected into next year.
In its latest economic commentary, the ESRI said personal spending would pick up in 2014 on the back of the improving jobs figures and consumer sentiment and the view that the international economy is getting healthier.
"You have a very strong growth in employment now," research Professor John FitzGerald said.
"Even if there was no further growth in the second half of this year, employment would be up at least 1.5pc, 1.6pc compared to last year.
"There are real jobs being created and that is a really good indicator of what is going on with the economy."
The think-tank maintained its view that the Government should stick with the original plan to take €3.1bn out of the economy in the Budget through tax hikes and spending cuts, warning it should play it safe.
It said the Government "may get away" with its reduced €2.5bn adjustment, but it echoed concerns from the IMF that more might have to be done in 2015 than expected.
Mr FitzGerald said that the reduced adjustment might add a 0.1 percentage point to the growth rate.
"What €2.5bn would do is increase the risks for next year," Mr FitzGerald said.
"It won't make a huge difference to the numbers this year. But if you find yourself having to do another €2.5bn next year because you didn't do €3bn this year, then it would be serious.
"There is a possibility that if they did €3bn this year, they wouldn't have to do any further cuts in the 2015 Budget."
Key findings from the autumn economic commentary include:
* GDP projected to rise 0.5pc this year and 2.6pc next year.
* Personal spending will go up 0.2pc this year and 1.5pc in 2014.
* Unemployment projected to be 13.6pc this year and 13.1pc in 2014.
* Investment in housing will remain subdued this year with a modest upturn into 2014.
* Exports will remain flat this year but will surge 4.6pc in 2014.
* Imports will contract fractionally by 0.1pc this year and rise 4pc next year.
The ESRI said it expects government borrowing as a percentage of the value of the economy to be lower than the 7.5pc target this year.
And it said that if the Government was to stick with the €3.1bn budget adjustment, the deficit next year could fall to 4.4pc – well within the 5.1pc target.
But it warned that there remained considerable uncertainty about the timing and strength of the EU recovery, with a delay making it harder to meet our targets.
Meanwhile, in a research note, the ESRI said that home ownership had become an attractive option again because people were now expecting house prices to increase.
"That should contribute to housing demand going forward," research officer David Duffy said.