IBEC cautions Government on spending levels

Total employment will continue to rise rapidly but Government spending must be kept under control, according to the latest comment from employer group, IBEC. In its quarterly economic trends commentary IBEC forecasts that employment will increase by 42,000 in the year to April 1998 to 1,361,000 people at work, a rise of 3.2 per cent. This will follow an estimated 2.6 per cent rise, or 34,000 more people in employment, in the year to April 1997.

Order books continued to show an upward trend in the first six months of the year and company's production expectations were strong in its latest survey, according to IBEC. Given an improving export market, IBEC forecasts growth in manufacturing output of 12 per cent for 1997, followed by strong growth "of a similar order of magnitude" in 1998.

While exporters will benefit from some strengthening in the European economies, IBEC warns that exchange rate uncertainty could become a factor in the run up to European Monetary Union.

After growth of 6.3 per cent in 1996, IBEC estimates that growth in consumer spending will slow marginally to 5.7 per cent this year. The likely rise in inflation because of exchange rate movements will pull back growth a little, but not enough to damage spending growth "in any material way", according to IBEC. In 1998, possible interest rate rises in the run up to EMU could dent consumer confidence be a risk factor. IBEC is forecasting a slower rise in consumer spending next year, with a 5 per cent rise increase.

IBEC expects net Government spending to increase by at least 3 per cent this year followed by growth of 2.5 per cent next year. "One worrying aspect of the Government's action programme is its commitment to maintain the average increase in nominal current net Government expenditure (including debt servicing) to 4 per cent rather than targeting gross current expenditure," IBEC commented. The main difference between gross and net Government spending is PRSI receipts - the higher the PRSI receipts the lower is net spending. Current high tax receipts are depressing net expenditure figures so that there could be a higher than expected overrun in gross Government spending, IBEC warns.