Coalition can meet deficit target with adjustment of only €200m, says Ibec

Ibec says the economy will expand by 3.1 per cent this year and nearly 4 per cent next year.

In its latest economic outlook, the employer’s group said the Irish economy is now well in “recovery mode” with more confident consumers spending again, investment recovering strongly and exports boosted by a better-than-expected recovery in the UK.

As a result, it has upgraded its growth forecasts. However, it said these forecasts, which are substantially more optimistic than those of the Central Bank or the Department of Finance, were based on its own recommendation that an adjustment of only €200 million is needed in the coming budget.

Less austerity

New economic data, including the better-than-expected exchequer numbers, meant less austerity was needed in October’s budget, it believes.

Nonetheless, it said it would prudent to target a 2.7 per cent deficit next year instead of 2.9 per cent in order to support “Ireland’s reputation and credibility in the international financial markets.”

It believes this lower target can be reached with a net fiscal adjustment of €200 million.

While the Government has signalled it plans to make an adjustment of something less than €2 billion, it has not specified by how much.

In its report, the group noted that while employment grew by nearly 43,000 in the past year the country’s jobless rate, which stands at 11.5 per cent, was still too high.

This highlighted the need for Government to further support business in creating jobs, it said.

Ibec said conditions for Irish exporters have been buoyed by recovery strong recovery in key markets, most notably in the UK.

On that basis, it predicted export growth of nearly 5 per cent for this year.

Elsewhere, the group also predicted that rising employment and lower household savings should lead to a rise in consumer spending of 1.9 per cent this year.

Broad-based recovery

Fergal O’Brien, Ibec’s head of policy and chief economist said, “Ireland’s economic recovery is set to continue; more importantly it’s becoming more broad-based.

“There is now good momentum in the Irish economy and we have revised upwards our 2015 GDP forecast to nearly 4 per cent to reflect this.”

“However, this forecast takes into account that our recommended reduction in the budget adjustment would lead to positive feedback on both private consumption and investment. The upcoming budget presents Government with an opportunity to stimulate growth and get more people back to work.”