The Irish Times view on the Government’s revised economic forecasts
We have to adapt to the idea of slower growth, which now looks inevitable
Minister for Finance & Public Expenditure Paschal Donohoe sets out the Government’s revised economic forecasts. Photograph: Gareth Chaney/Collins
Recent revisions to the economic growth outlook have not been dramatic but they have all had one thing in common. Forecasts are being revised down – albeit not by too much. The Department of Finance this week followed the trend and cut its GDP growth forecast this year to 3.9 per cent, falling to 3.3 per cent next year. This reflects slower growth in some of our major export markets as well as some signs of more moderate domestic growth. Notably, the latest projections from business lobby group Ibec see 2020 growth of just 2.7 per cent.
Irish growth figures are heavily distorted by activities of the multinational sector but, even allowing for this, forecasts for this year and next now suggest a cooling.This was inevitable at some stage and the task now for the Government is to try to pilot the economy through this slower trajectory and deal with the implications. One may be some decline in growth rate of tax revenues, which in recent years has allowed significant increases in the rate of government spending.
For the moment, the economy is in a strong position, generating jobs and higher incomes. Slower growth internationally will have an inevitable impact – the important thing is that the global environment does not head into even more difficult territory. So far this does not seem in prospect although trade wars remain a threat as does Brexit.The economic risk to Ireland of the UK leaving the EU has now been deferred until October but the repercussions of a no-deal Brexit, with all its attendant disruption, remain.
The difficulty for the Government in starting to frame the 2020 budget is that the shape of the UK’s departure may not be clear by the time the package is presented. Meanwhile, other global uncertainties remain. Against this backdrop, it would be most unwise to bet on the prospect of corporate tax revenues continuing to soar. Indeed, we are exposed already in this regard.
In what may be the last budget before a general election, the temptation for the Government will be to push the risks to one side in framing tax and spending plans. That approach must be resisted.