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Irish move away from austerity was premature, warns OECD


Construction is picking up again

Construction is picking up again

Finance Minister Michael Noonan

Finance Minister Michael Noonan


Construction is picking up again

Ireland has "prematurely" shifted away from austerity to stimulus, the Organisation for Economic Cooperation and Development (OECD) has said.

The Paris-based think-tank said further reforms were needed to boost competition, innovation and make it easier to start and grow a business.

It added that any extra cash in the State's coffers should be used to cut debt.

"If government revenue is higher than budgeted, this should be put towards reducing still high public debt more rapidly," the OECD said in its latest economic outlook report.

It came as the State's budgetary watchdog warned that Budget 2015 had been a missed opportunity to further fix the public finances.

The Fiscal Advisory Council said the State's debt level would now be €10bn higher in 2018 because the Government "backtracked" on plans to impose a further €2bn in austerity in Budget 2015.

The OECD said that a vigorous and broad-based recovery was under way here, with spending, investment and exports all expanding.

Growth in key trading partners such as the US and UK, as well as rising house prices, tourism and consumer confidence, were helping to boost jobs, incomes and spending, it said.

While it noted employment was falling, it warned that the share of long-term unemployed remained large and about 40pc of those were "poorly educated and skilled".

"The authorities will need to remain focused on improving training and activation for these people," the OECD report noted.

Improving financing conditions, pent-up investment demand and an expansionary fiscal policy was expected to push up growth above 3pc both next year and 2016, the think-tank said.

But it warned that trading partner growth, especially in the Eurozone, may turn out to be lower than expected. "High public and private debt make Ireland still very vulnerable to unexpected shocks," it said.

"On the upside, the investment-to-GDP ratio remains below historical levels and a self-reinforcing cycle of rising house prices and sharply expanding activity may see stronger growth in construction and other investment than currently projected."

The OECD also noted that employment growth and falling unemployment would raise price and wage inflation.

The think-tank said the global economy would gradually improve over the next two years but Japan would grow less than previously expected while the Eurozone struggled with stagnation and an increased deflation risk.

Irish Independent