Economist urges investment bank

AS Irish citizens face into a decade of belt-tightening, Friends First chief economist Jim Power wants the Government to proceed with plans for a strategic investment bank to help the SME sector finance job-creating expansion plans.

Mr Power said further cutbacks are the dual realities facing every Irish citizen for the best part of a decade despite growing exports.

He said: “While the export recovery is good news, this growth has been driven by higher productivity and cost-cutting, rather than employment creation. A recovery in domestic demand is essential for employment creation and stronger public finances.

“Until adequate credit flow returns to the business sector, investment will remain weak. The Programme for Government commitment to set up a strategic investment bank seems to have receded, but such an entity is desperately needed to target and support the credit-starved SME sector. Ireland badly needs an ICC-type bank.”

Yesterday, Mr Power released his pre-budget quarterly economic outlook, which predicts that GDP will grow by 1.4% in 2012, a more optimistic growth rate that most commentators.

He also expects house prices to fall 8% in 2012; GNP to contract 0.3% in 2012; and the unemployment rate to average 14.3% in 2011 and 14.1% in 2012.

Mr Power said Finance Minister Michael Noonan has to remain steadfast in his commitment to get the economy back on track. Borrowing must be brought under control to stabilise debt levels.

“Choices will have to be made, while recognising that whatever measures might be taken may damage employment, the imperative is to introduce measures which are the least damaging to employment. In this regard, a VAT rate increase is preferable to an increase in income tax, which would be more damaging to employment,” he said.

Mr Power claimed Ireland is powerless to influence the eurozone crisis and warned that a contingency plan is necessary in the event of the system falling apart, which could involve re-establishing the sterling link or a link-in with a hard or soft euro bloc that may evolve.