IMF ‘over-cautious’ in growth forecast

THE IMF was being over-cautious in its forecast for the country’s economic growth, according to the Department of Finance and several economic commentators.

Overall the IMF’s annual report agreed in principle with the policies being pursued by the Government, but called for austerity measures to be stepped up.

Otherwise the Government’s budget deficit will be 5.9% in 2014 rather than the 2.9% they are committed to achieving under the EU growth and stability pact.

A spokesperson for the department said: “We are not being overly optimistic: the ESRI and others have been more positive than we have been” and added they believe they will reduce the deficit to less than 3% inside the four years.

NCB Research, however, concurs with the IMF and says the Government will likely have to engage in further fiscal consolidation if it is to reduce the deficit to 2.9% by 2014.

Rossa White of Davy’s said the IMF may be slightly conservative on their estimates for potential growth and by extension the structural deficit and debt stabilisation.

The output gap, the difference between where the economy is today and its potential, can only be a rough estimate, he said.

The IMF is conservative about potential growth, arguing it will go to 2.5% by 2015 which Mr White says it may reach sooner.

However, he adds that while the output gap will close quicker than the IMF’s predictions, it will still expose a relatively high structural deficit, not far from the IMF’s estimates.

Jim Ryan of Ernst and Young said the Government must remove doubt about the possible imposition of a property tax, mentioned by the IMF in its report.

A fixed monetary levy — as the government has suggested as an interim measure — will ensure certainty, but will not achieve equity.

Irish Financials said the property tax, and a levy on bankers’ pay and profits would help cover the €3.5 billion shortfall in the budget as predicted by the IMF.