ANOTHER year of record economic growth is expected to bring the surplus on the current budget to well over £500 million for 1997 and lead to employment rising by almost 1,000 jobs a week. These figures, contained in the latest internal forecasts from the Department of Finance, indicate that the economy is growing much more rapidly than expected.
Meanwhile, an OECD report released yesterday underlines the department's optimism, but warns about the dangers of an inflationary pickup and the need to control consumer spending.
The department has revised its estimate for Gross National Product growth for this year up to 6.5 per cent. It has not revised the forecasts for 1998 and 1999 which remain at 5.5 per cent and 4.5 per cent respectively. However, it now forecasts; tentatively that growth will fall to 4 per cent in 2000.
It is also predicting that Gross Domestic Product the measure of economic growth before factors such as profit repatriations are taken into account - will grow by as much as 7.4 per cent this year. The Budget Day GDP forecast was for an increase of 6.5 per cent.
The department is traditionally conservative in its forecasts for the economy, and the GNP growth forecast could be raised to 7 per cent by the end of the year. The department is due to publish its updated official forecasts at the end of July, in its annual economic review and outlook.
The latest figures will mean the current budget surplus this year could rise to over £550 million, well over twice the forecast made by the Minister for Finance, Mr Quinn, on Budget Day.
Higher tax receipts would be off set to some extent by an overrun of less than £100 million on spending, mainly accounted for by compensation to hepatitis C victims and public sector pay pressures.
However, the new Minister for Finance should be able to announce the strongest budgetary position for many years, at the end of 1997. Even after borrowing for capital purposes, total borrowing for the year could be less than £250 million, compared to a Budget forecast of £637 million.
Meanwhile, in its half yearly economic forecasts, published yesterday, the OECD said GNP will remain close to 6 per cent, supported by the increase in the labour force and further inward investment.
Both the OECD and the department are predicting that unemployment will fall below 11 per cent this year, with the department expecting 10.3 per cent. The department sees this falling to 9.6 per cent next year and then to 9.2 per cent and to 8.8 per cent in 2000.
However, the department and the OECD differ on the risks to inflation. The department has revised down its inflation forecast for this year to 2 per cent from 2.2 per cent. However it has left its forecasts unchanged for 1998 and 1999 at 2.1 per cent.
The OECD, however, warned that "inflation pressure may start to rise". It said that a 3 per cent a year expansion in employment could lead to a pickup in wage and price inflation.
The OECD also warned that there was a risk of a further decline in the savings rate because of rising asset including house prices and improved labour market conditions. "This would add to demand pressures and increase the risk of inflation," it warned.
