The ESRI forecasts GNP to grow by 4.1% in 2015 and by 3.5% in 2016. GNP is considered a more accurate reflection of the domestic economy, as it strips out the effects of multinationals. GDP, which includes the effects of the multinational sector, is to grow by 4.4% this year.
Ireland was the fastest growing economy in the EU last year, with a GDP growth rate of 5.2%.
The ESRI noted that much of the growth in Ireland’s economy up to middle of last year stemmed from the export sector. However, a pick-up in investment and consumption will lead to a more balanced recovery over the medium term, it added.
The budget deficit as a percentage of GDP will fall to 2.3% this year and 0.3% next year. Under the terms of the EU/IMF bailout programme, the Government agreed to reduce the budget deficit below 3% this year.
Associate research professor at the ESRI, Kieran McQuinn, said the Government should target budget surpluses from 2017 onwards.
Prof McQuinn said he did not know any of the details about the Government’s recent discussions with the EU Commission on the possibility of increased budget flexibility.
“I’m not sure why they [the Government] would want this,” he said at a press briefing in Dublin yesterday. “From an Irish perspective, it should not be of use over the next few years.”
The ESRI’s forecasts are based on a “fiscally neutral” position over the next two budgets.
Taoiseach Enda Kenny, said following a meeting of EU leaders in Brussels last week that he had raised the issue of budget flexibility under the Fiscal Stability Treaty in order to gauge the scope for tax cuts in October’s budget.
The move was widely seen as the opening gambit in a general election campaign that has to be held at the latest by April 2016.
Moreover, Mr McQuinn said the ESRI should play a role as an independent adjudicator in assessing the fiscal soundness of the various political parties’ economic manifestos.
Kevin Daly, an economist with investment bank Goldman Sachs last week issued a warning that the biggest risk facing the economy came from a Sinn Féin-led left-leaning government.