Central Bank firm on budget deficit

The Government must ensure that it meets its budget deficit reduction targets in order to maintain market confidence, according to the Central Bank.

Central Bank head of economic analysis John Flynn declined to comment on whether it was appropriate for the Government to commit to tax cuts for middle-income earners or whether it should stick to the planned €2bn consolidation in October’s budget.

“The Central Bank’s focus is on deficit and debt levels and these are still quite high. It is important that fiscal consolidation stays on track and there is a need for further consolidation,” said Mr Flynn.

The Central Bank marginally downgraded its GDP growth forecast for this year, but it made a sizeable upwards revision to GNP growth. It now sees GDP growth at 2% compared with 2.1% in its last quarterly review of the economy, but the 2014 GNP growth forecast has been raised from 2.2% to 2.7%.

The slight downgrade to GDP has been attributed to the ongoing uncertainty of the ‘pharma cliff’ to the overall pharma sector, which is a big component of the foreign direct investment sector.

The increase in GNP, which is a more accurate measure of the domestic economy, has been attributed to a rise in private consumption and investment.

Private consumption is now expected to rise by 1.1% over this year, compared with a previous forecast of 0.1%, while investment is now predicted to rise by 11% compared with a previous rate of 2.2%.

The 2015 GDP growth forecast is 3.2% and GNP is 2.6%.

Employment growth is forecast at 2.6% this year and 2.2% next year, with the unemployment rate expected to fall to 11.3% at the end of this year and 10.4% at the end of next year.

The Central Bank said that repairing the banking system was a prerequisite for economic recovery. Mr Flynn said it was never the intention of the Central Bank to release the results of the balance sheet assessment it conducted on the three domestic banks last November.

“The balance sheet assessment is part of the [ECB’s] comprehensive assessment of the banking sector. The results of these will not be out until the end of the year. We would have been out of step with the others if we had disclosed the results of the balance sheet assessment.”