Central Bank urges grip on public spending

The Central Bank has urged the next government to keep a firm grip on public spending and reduce public sector debt.

The regulator has also said it does not want to be given the powers to regulate mortgage costs and force banks to reduce mortgage borrowing rates.

“Our policy advice does not refer to the composition of budgetary policy — that’s absolutely a matter for government,” said the Central Bank director of economics and statistics Mark Cassidy.

“Our advice only recommends to the overall fiscal stance and the need for a prudent overall stance in the coming years,” he said.

He

said that when the economy is close to full capacity any government must not add to pressures that could lead to overheating.

It was up to government to decide the composition of spending and how to fund it through taxation, Mr Cassidy said.

The Central Bank has forecast economic growth to slow this year and next — with GDP expected to grow by 4.8% in 2020 and 4.2% in 2021; down from an estimated 6.1% in 2019.

The election results are not reflected in any of its latest forecasts and it has also shied away from commenting on the three main parties’ housebuilding promises for the next five years, which range from 100,000-200,000 new homes in that timeframe.

New CSO figures showed house completions reached a decade-high, of 21,241, last year.

The Central Bank expects a 40% increase in the next two years, with 26,000 houses being built this year and 30,000 next. It said an achieveable level of new builds would be around 34,000 per year over the medium term of 10 years.

“We do see supply coming more in line with demand requirements,” Mr Cassidy said.

In a research note, Goodbody chief economist Dermot O’Leary said the housing targets of Sinn Féin looked “very ambitious”, saying future builds of apartments could be under threat if Sinn Féin were to implement some of their policy proposals if they came into power.

The Central Bank’s overall economic forecasts are based on the assumption that some form of EU-UK free trade deal will be agreed.

The long-term impact of such a deal on the Irish economy would be for a 1.2% rise in the unemployment rate, and 50,000 fewer jobs.

The Central Bank’s call for prudent finances was echoed by the Parliamentary Budget Office and S&P Global Ratings.

Director of the budget office Annette Connolly said that the public finances face risks, saying that revenues were driven by corporate tax receipts.

“This poses a major challenge for the delivery of public services,” she said.

Anticipating protracted negotiations to form a new government, ratings firm S&P said it still expected the next coalition to follow the EU spending rules.

It said Irish GDP growth will “continue to rank among the strongest in the developed world”.

“Nevertheless, we are projecting a marked slowdown in GDP growth toward 3% on average between 2020-2022, also reflecting the risk that Ireland’s second most important trading partner, the UK, departs the customs union and single market at the end of this year, without a trade agreement with the EU,” it said.