Central bankers increase growth prediction
THE Central Bank yesterday predicted the economy will perform better than expected this year, while new figures showed the public finances on track to reach their targets.
But hopes of a stronger recovery and an early return to balanced budgets are threatened by the worsening eurozone crisis.
The Central Bank, which has been forced to slash growth forecasts repeatedly in the past few years, found itself in the unusual position of raising its 2011 forecasts following better-than-expected growth in the first half of the year. The bank now see gross domestic product rising 1pc this year, up from 0.8pc in its July forecast.
But it had to downgrade its predictions by the same amount for 2012 because of fears that European and global growth will be hit by the euro crisis. The French and Belgian governments were forced to provide €130bn in guarantees for the cross-border bank Dexia, which has lent large sums of money to Greece.
Yesterday's Central Bank prediction was welcomed by Finance Minister Michael Noonan in Luxembourg who said it was better than he had expected.
Public Expenditure Minister Brendan Howlin said it was too soon to say whether the better growth would ease December's Budget and the bank was also cautious. "It is difficult to say at this stage whether this will be the €3.6bn adjustment currently projected under the EU-IMF Programme, or whether a larger adjustment will be needed to achieve this target," it said in its quarterly report.
But the nine-month Exchequer returns open the possibility that Mr Noonan will not have to increase the tax and spending adjustment closer to €4bn.
Poor consumer spending left VAT €300m below forecasts, but income taxes were almost €150m better than expected, while the €460m levy on pension savings left tax revenues 3pc up on the same period last year.
Spending is broadly on target, although the Department of Justice will have to find savings to match the costs of the state visits of Queen Elizabeth and US President Barack Obama and the HSE is struggling with cost overruns.
"I was very pleased that the Central Bank marked growth up for 2011, and that the reduction for 2012 was only a quarter of 1pc," Mr Noonan told reporters as he attended a finance ministers' meeting in Luxembourg.
"I was expecting, with the decline in the economies of our customer countries to which we export, that there'd be a more significant markdown.
"But the Department of Finance will have to form their own independent opinion through their own forecasting unit as to where we pitch the estimate for next year and that will be a crucial factor in the preparation for the Budget," he said.
The Central Bank urged the Government to use the improving situation to cut borrowing faster.
"It would be good to have a buffer and not just be struggling to meet that target," said Maurice McGuire, the bank's director of economic services.
Mr Noonan dismissed suggestions that the crisis at Dexia could trigger a domino effect that would reach Irish financial institutions.
"It's a Franco-Belgian issue, it's nothing to do with the Irish situation," he said.
Meanwhile, European Central Bank president Jean-Claude Trichet used his last appearance before the European Parliament to call on politicians to accept their "collective responsibility" for the destiny of the eurozone and the EU.