Political uncertainty threatens Ireland’s recovery

The biggest domestic risk factor to Ireland’s continued economic recovery is political, an economist has warned.

Calling for a general election by April 2016, Jim Power, chief economist with Friends First, warned on Wednesday that there is no guarantee that the formation of a stable government will be possible due to the growing proliferation of Independents.

“Political stability has been a key factor in selling Ireland to international investors in recent years and this is now under threat. The Irish electorate needs to be very careful not to undermine the progress that has been made in very difficult circumstances since the economy crashed,” he said.

Of the broader economy, Mr Power said that it has entered 2015 with “strong momentum”, but he warned that it would be “dangerous to be complacent”.

In particular, Mr Power said that the Government’s decision to award public sector wage increases is “worrying”.

“A gradual easing of the personal tax burden, particularly for low to middle-income workers would be the most appropriate policy measure to pursue, rather than increasing public sector pay and generally increasing government expenditure,” he said, adding that a higher public sector pay could undermine Ireland’s cost competitiveness .

“We are once again seeing the primacy of politics over economics,” he said.

Another threat on the horizon is the future of the UK in the EU.

“If the UK were to leave the EU, the implications for Ireland would be significant,” he said, adding that the ongoing difficulties with Greece continue to be a significant threat.

Property

On the Irish housing market, Mr Power said it’s important that demand and supply side measures are implemented early in the recovery cycle “in order to prevent economically dangerous price trends from developing”. Of the Central Bank’s lending restrictions, Mr Power said they “make sense”.

“Restricting the amount of money that borrowers can access, should take some heat out of property prices, particularly in Dublin,” he said, but added that policy makers must also increse the supply of housing and introduce measures to ensure a more efficient and effective private rental market.

“Ireland needs to build houses where they are required, but the lack of professional developers, credit constraints and the poor economics of house building are acting as an impediment”.