Europe forecasts lower growth rate for Ireland in 2014
Commission’s forecast of 1.8% GDP growth is lower than rate cited by Minister for Finance Michael Noonan last week as being a trigger for income tax cuts
Minister for Finance Michael Noonan said last week that income tax cuts could be made in this year’s budget, hinting that a growth rate of over 2 per cent would strengthen the case for income tax cuts. Photograph: David Sleator/The Irish Times
Ireland’s economy is expected to grow by 1.8 per cent this year, the European Commission said this afternoon, putting it at odds with Central Bank estimates last month which predicted that the economy would grow by 2.1 per cent in 2014.
According to the European Commission’s economic growth forecasts published today, Ireland’s economy will grow by 1.8 per cent his year, and 2.9 per cent in 2015. Unemployment is expected to come in at 11.9 per cent this year and 11.2 per cent next year, slightly below the European average.
The figures show that Ireland’s debt to gdp ratio remains stubbornly high at 122.3 per cent last year, though this is expected to dip slightly to 120.3 per cent this year, and 119.7 per cent next. Ireland has the fourth largest debt to GDP ratio in the EU after Greece, Italy and Portugal.
Minister for Finance Michael Noonan said last week that income tax cuts could be made in this year’s budget. He also hinted that a growth rate of over 2 per cent would strengthen the case for income tax cuts. “If various independent forecasters are correct, and the economy is growing faster than the 2 per cent [FORECAST], that should give taxation buoyancy,” he said last week at a conference in Brussels.
Ireland’s relatively high debt to gdp ratio has previously been cited by officials in Dublin as one rationale for Ireland’s bid for further debt relief for its banks through the euro zone’s rescue fund, the European Stability Mechanism (ESM). About a third of the debt to gdp figure relates to the bailout of banks in Ireland.
According to the Commission’s analysis of the Irish economy, the expiry of patents in the pharmaceutical sector could pose a threat to Ireland’s economic progress. However, the country is poised to benefit from faster-than-expected economic growth in the UK, it said.
“Given the importance of UK trade, in particular for indigenous Irish firms, the accelerated rate of UK recovery represents an important upside risk for growth, employment and the current-account position, “ the Commission said.
The analysis notes that, after a slow start to 2013, growth began to pick up in the third quarter of last year. “There are indications domestic demand is starting to perform more strongly, as the labour market has continued along a steady path of improvement across different sectors.”
In its forecasts the European Commission also downgraded its forecasts for Italy. It predicts that the Italian economy will expand by 0.6 per cent this year, compared to the figure of 0.7 per cent forecast in November. Italy’s debt will rise to 133.7 percent of GDP in 2014, one of the highest in the European Union.
Today’s forecasts also suggest that France will miss its deficit targets next year, although the commission raised its forecast for French growth this year to 1 per cent from 0.9 per cent, boosted by consumer spending. France has been under pressure from Brussels to implement structural economic reforms in order to reduce its budget deficit. Among the issues highlighted by the European Commission in today’s report is France’s shrinking share of the export market. “Net exports are expected to provide nil contribution to growth in 2014 and to dampen it again in 2015,” the Commission said.