Ibec raises GDP forecast to 4%

Ibec has significantly upped its outlook for economic growth, saying GDP could grow by as much as nearly 4% in 2015 — nearly 1% higher than it previously forecast.

The employers’ representative group has consistently claimed the national economy has the potential to grow by up to 4% annually over the next decade, aided by inflation growth rather than continued tax hikes.

While it sees inflation remaining benign in the near-term — with only gradual increases of 0.8% and 1.4% for 2014 and 2015 — Ibec sees next year’s anticipated movement as the beginning of a growth trend.

In its newly published pre-budget submission, Ibec says its 2015 GDP outlook takes into account “the positive feedback loops the expected reduction of fiscal measures will have on consumers, companies, and, ultimately, the overall economy”.

Ibec still feels the economy will grow — in GDP terms — by 3% this year. Both its 2014 and 2015 forecasts are well above those of the Department of Finance, which has pencilled in growth of 2.1% and 2.7% for this year and next.

“Economic growth is expected to gather momentum in the coming quarters. Moreover, the base of the recovery is expected to broaden. Investment and private consumption will contribute positively to growth,” Ibec said.

Companies have more confidence in the economic recovery, seen in the improved sentiment indicators.

“Moreover, the interest rate environment will remain low and support stronger investment spending. The positive development in employment will continue this year and next. With labour market conditions improving, private consumption will recover and contribute positively to GDP.”

Regarding October’s budget, strong GDP figures from last week — showing revised moderate growth for 2013 and a better-than-expected gain of 2.7% for the first quarter this year — strengthened the anticipation that Finance Minister Michael Noonan will seek a fresh adjustment of significantly less than the mooted €2bn, via tax hikes and spending cuts.

Ibec has put a firm figure on how much less is needed, saying a €200m net fiscal adjustment is all that’s required come October 14.

The body claims that Budget 2015 can be the first growth-enhancing budget for almost a decade and said its submission is realistic and prudent, in itself, and enough to reduce Ireland’s budget deficit to 2.7% of GDP by the end of next year, marginally ahead of target.