One of the country’s leading think-tanks has urged the Government not to rock the boat of economic recovery with tax cuts.
The Economic and Social Research Institute (ESRI) issued the caution as it revealed homegrown business is to grow by just over 4% this year and 3.5% in 2016.
The state advisers gave the warning as part of their latest review of the economy and amid criticism of government parties for so-called auction politics with an election somewhere on the horizon.
Kieran McQuinn, ESRI economist, said the Government should look at policies to keep the recovery ticking over rather than any give-away tax cuts.
“The optimum strategy now is to keep things ticking along, (to not) rock the boat,” he said.
The ESRI’s forecasts for gross national product (GNP) – a more accurate reflection of the economy and not influenced by the multinationals – are up on estimates from this time last year.
But it cautioned that it will be the end of next year before the levels are back where they were at the end of the boom.
The ESRI pointed to growth of 5% last year which it said was driven largely by the return of people to the workforce while next year the real drivers will be investment in buildings, office blocks, roads, transport and housing and potentially consumption. It also said exports will continue to perform well.
Among other predictions the ESRI expects unemployment to fall to the psychologically significant (because it is lower than 10%) mark of 9.7% this year and 8.4% in 2016 – that’s about 185,000 people on benefits and levels not seen since 2008.
It noted one of the major successes of the homegrown economy last year was that up to 60,000 of the 70,000 jobs created were in Irish businesses.
“That’s a positive development as far as this recovery is concerned and hopefully that will continue,” Mr McQuinn said.
The wider economy, including the value of foreign owned multinationals, is expected to grow by just over 4% this year before easing back slightly to growth of 3.5% in 2016.
On the housing market, the ESRI dismissed fears of a new property bubble claiming that the lending restrictions being imposed on prospective buyers by the Central Bank combined with the renewed growth in house building should dampen demand.
It said it does have concerns about the market but that 16,000 homes should be built this year, up from 11,000 in 2014, and 18,000 next year, albeit short of the 25,000 estimated to be needed by a developing Irish economy and society.
Mr McQuinn said the ESRI believes the national picture of the property market shows that some homes on the market remain undervalued but the experience in Dublin is a little harder to determine.
The think-tank pointed to the impact the Central Bank’s lending rules will have. It said the stricter limits – a 20% deposit – will reduce the rise of property prices and this in turn may lead to fewer homes being built and less money being loaned by banks.