Discretionary spending cash to rise

CASH available for discretionary spending by households with mortgages will increase by 6.5% this year, as a result of ECB interest rate cuts, according to the Irish Business and Employers Confederation.

However, IBEC said, because of “increased uncertainty in Europe and globally”, it has cut its forecast for 2012 GDP growth to 0.9%.

In its first Quarterly Economic Outlook of 2012, IBEC forecasts that, despite the cut in mortgage rates, consumer spending is set to fall by a further 2% in 2012, before recovering by 0.5% in 2013.

“On a positive note for the domestic economy, IBEC said that, if consumer confidence improves, there is a possibility of positive economic surprises this year: Budget 2012 did not increase income tax and the ECB decision to reduce interest rates will increase the discretionary income of mortgaged households by 6.5%. Prior to the rate reductions, discretionary income was set to fall by 1.6% in 2012,” IBEC said.

IBEC expects the euro to trade at a weaker level with both the dollar and sterling.

“This will have a positive impact on our export performance. Exports are expected to continue to drive Ireland’s economic recovery, increasing by 3% in 2012 and 4% in 2013. The weaker euro exchange rate will boost the nominal value of GDP against which the EU/IMF targets are set; Ireland remains on track to meeting its deficit reduction targets,” IBEC states in its Economic Outlook.

IBEC said there is an urgent need for the upcoming Government jobs strategy to include ambitious new stimulus measures to support jobs and growth through major investment in physical and human capital, and fresh initiatives to support domestic demand.

IBEC last year set out a range of cost-neutral proposals in this regard, including allowing people access a portion of their AVCs and personal pension schemes, so this money can be spent in the economy now. IBEC forecast this could release €1.3bn into the economy.

IBEC director general Danny McCoy said: “It is vital Ireland continues to invest and plan for the future. Focus to date has been on correcting the public finances and the banking system and both of these are well on track. The overriding priority for 2012 must be getting people back to work. This requires radical thinking from both Government and troika.”