THE economy is growing far faster than expected, according to internal Department of Finance forecasts. It now predicts that the number of jobs likely to be created this year will be well ahead of previous forecasts and inflation will be lower than originally estimated, The Irish Times has learned.
The forecasts are based on the exceptionally strong growth in tax revenues in the early months of the year, which indicate that employment and consumer spending are both rising rapidly. They show that the new Minister for Finance will be taking over a healthy budget position.
The Organisation for Economic CoOperation and Development, in a separate report published yesterday, also says it is expecting Irish growth levels to remain robust, but it has warned that inflation pressures may start to rise.
The Department of Finance has increased its forecast for growth in the economy this year. On budget day it estimated a figure of 5.5 per cent growth in Gross National Product this year. This has now been increased to 6.5 per cent, and given that the Department normally errs on the side of caution, this could rise to 7 per cent. The figures will be published in the Department's annual Economic Outlook at the end of July.
One of the main reasons for the upward revision is the strong growth in tax revenues, which are now expected to come in at least £500 million above the budget day forecast.
During the election campaign Minister for Finance, Mr Quinn, said tax receipts would come in £400 million ahead of target, but even this is now seen as a conservative estimate. Officials believe the strong growth in tax revenue is due to an exceptionally strong burst of consumer spending, feeding into VAT and other tax receipts.
However, it may also imply a stronger than predicted growth in employment creation. The Department is expecting 50,000 jobs to be created this year, up from its earlier estimate of 45,000. Unemployment will fall to 10.3 per cent this year and to 9.6 per cent next year, according to the new estimates.
The Department is also sanguine about the prospects for inflation. The forecast for this year is now running at around 2 per cent, down from 2.2 per cent at budget time. Inflation figures for May are due to be published tomorrow, which could influence the final published forecast. The Department's forecasts for inflation next year and in 1999 have remained static at 2.1 per cent.
One reason for the constant upward revision in Irish growth forecasts is that most Irish indicators lag behind actual activity and, as a result, it is difficult to get an accurate read on what exactly is going on in the economy.