Tuesday 16 January 2018

Economy needs a stimulus but IMF wants Budget cuts of €3bn this year

Colm Kelpie

Colm Kelpie

Q: I thought we were the model country, on the road to recovery. How did we end up back in recession?

A: That's a pretty complex question and there is no single reason. It's mainly because the eurozone economy is in the gutter, and that means there's less demand for our exports.

To add to that, the domestic economy is continuing to flatline as people either don't have the money to spend or are saving whatever spare cash they have fearing the worst isn't over.

Q: How long will this last?

A: Your guess is as good as mine. For those suffering the brunt of the crisis, the data is hardly surprising. But these figures were unexpected even by those whose job it is to forecast such things.

Prior to yesterday's figures, analysts were predicting modest growth for the first three months of 0.3pc. Instead it shrank by 0.6pc, so they were way out.

Q: Is it all the Government's fault?

A: That's a bit of a loaded question. The reality is, we're not alone in this. Data released on Wednesday showed the US economy grew less that previously calculated in the first three months of the year, while the French economy contracted by 0.2pc.

And our nearest neighbour Britain – our biggest de facto trading partner – revealed that its economy suffered a sharper contraction during the crisis than it thought.

The head of the European Central Bank this week called for a new approach to tackling the crisis, so it's now down to governments to try and stimulate growth and no longer simply cut and cut.

Q: But that suggests we might have an easier Budget in October. How is there any room for leeway after this?

A: The advice to the Government, from the IMF, the fiscal advisory council and others, has been to stick with the targets – ie, go ahead with plans to take €3bn out of the economy next year and another €2.1bn in 2015. The fact that the economy is so fragile may vindicate that point.

But another, equally valid argument is that something needs to be done to stimulate the domestic economy.

Irish Independent

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