‘Budget cuts of just €1bn to reach 2.9% deficit target’

The Government will be able to reach a 2.9% fiscal deficit target in 2015 through a budget adjustment of €1bn as the economy will grow by 3.3% this year, according to Merrion Stockbroker economist, Alan McQuaid.

Mr McQuaid, in his latest quarterly economic outlook, forecasts GDP to grow by 3.3% this year and 3.9% next year — well ahead of the Government’s forecast of 2.1% GDP growth.

The European Commission, IMF, and the Irish Fiscal Advisory Council have all urged the Government to implement €2bn in budget cuts next October to meet the 3% deficit target by 2015 because of the uncertain economic backdrop.

“Half that amount should be sufficient, but there is definitely a strong case for easing the tax burden on workers,” said Mr McQuaid.

Moreover, he expects a rebound across all of the economy’s main metrics.

Personal expenditure — which has been contracting for the past number of years — is expected to increase 0.6% in 2014, followed by rises of 1.2% and 2.0% in 2015 and 2016 respectively.

“Although the recovery path for the labour market won’t entirely be smooth, we do think that the level of unemployment will continue to fall over the course of 2014.

“It does now appear as though the jobless rate has peaked, and we are expecting it to fall back to 11.6% on average this year from 13.1% in 2013, which itself was the lowest level since 2009.”

Mr McQuaid expects house prices at a national level to grow 10% this year, although in Dublin prices are expected to rise by 15% to 20%.

Exports of goods and services rose by 1.1% volume terms last year, with services up 7% in real terms on 2012 and merchandise down just over 4%.

“On the basis of stronger global demand in 2014, we are projecting a recovery in export performance, with a volume increase in goods and services this year of 5.5%, he added.