Friends First’s Power sees huge spending demands for a new government

A new government will face huge challenges to mend and invest in tattered public services at a time when public finances are still “constrained”, Friends First economist Jim Power has predicted.

Presenting his annual forecasts, Mr Power said the malfunctioning health service and urban and rural crime are two symptoms of under-investment in public services after the long years of austerity and crisis.

But he said he would not like to see the unexpected bounty from corporate taxes to be spent on public services because such tax revenues are likely to be windfalls.

Favourable external factors currently driving the economy could as easily turn around and weigh on economic growth in the near future.

As households continue to pay down debts, huge GDP growth rates are not translating into big rises in consumer spending, and many consumer businesses still face hard times.

The Irish economy, driven by low oil prices, rock-bottom ECB rates, and an exports-friendly exchange rate and expanding demand from the US and UK, will likely help boost GDP by 4.5% this year — on top of the 7.8% expansion in 2015, Mr Power projected.

“The external risks also now include China, the continued weakness of the eurozone, US monetary policy, global geopolitical uncertainty, terrorism, and the June 23 UK referendum on Brexit,” he said.

It is time to tackle the threats to prosperity that are under Irish people’s control, he said.

“On the domestic front, the key risks and challenges include sovereign and personal debt, growing wage pressures as well as improving the quality and quantity of public services in an environment of scarce fiscal resources, and political instability following the February 22 general election,” Mr Power added.

Nonetheless, the unemployment rate could fall to around 7% by the end of this year — down from 8.6% in March.

An increase in personal disposable incomes of “at least” 6% should drive personal spending 4% higher in 2016. Households will continue to pay down debt even as ECB pegs interest rates at low levels.