Government set to ignore fiscal advice

An economy is said to be growing at its “potential growth rate” when all of the factors of production— land, labour, capital and enterprise — are fully utilised.

If an economy is growing above its potential, excessive demand in the economy tends to push up wages and general prices and can do serious damage to an economy’s internal and external competitiveness.

Ireland, from 2000 to 2006, probably provides a good example of an economy growing above potential, with eventual catastrophic consequences for wages, general prices and the cost base of the economy.