Ibec has raised the bar in terms of bullishness on the economy; by forecasting that GDP will grow by 5.4% this year.
The forecast, contained in the employers’ representative’s first quarter economic outlook, published this morning, is notably more upbeat than the steady opinion offered by the Central Bank, which earlier this month, upped its 2015 growth forecast by just 0.1% to 3.8% and decreased its 2016 growth prediction by 0.1% to 3.7%.
In contrast, Ibec has upped its forecast for economic growth this year from an already high outlook of 4.8%. Furthermore, it anticipates the economy will jump another 4.7% in 2016. In GNP terms — which excludes the financial contribution of foreign multinational firms to the economy — Ibec foresees growth of 5.1% this year and 4.4% next year.
This would tally with recent Central Bank thinking that the domestic economy is beginning to make a positive contribution to growth for the first time since before the global recession in 2007.
Ibec’s bullishness is based on the perfect storm of benefits arising from the European Central Bank’s quantitative easing stimulus programme, favourable exchange rates and lower oil prices.
“Quantitative easing has led to a dramatic fall in the value of the euro. While some input costs will increase, the weak euro is a major bonus for exporters,” commented Ibec’s head of policy and chief economist, Fergal O’Brien.
“Ireland will benefit, more than any other eurozone country, because of the high level of trade with the UK and US, but the increased cost of some imports will offset a portion of the benefits. These higher import costs are also likely to feed through to consumer prices over the coming months,” he added.
On export performance, Ibec is anticipating growth of 9.4% this year and 6.5% in 2016. By contrast, the Central Bank is forecasting a 5.7% increase in exports this year. Ibec also sees consumer spending rising by 2.3% (more in line with Central Bank figures), but it feels the unemployment rate could drop below the 9% mark by the end of 2015.
Ahead of the Government’s upcoming spring statement, Ibec has said that despite a stronger-than-expected recovery, there remains “limited room” for fiscal manoeuvre.
“Strong growth can be maintained; but only if we manage the recovery sensibly. The Government should commit to reducing the punitive marginal tax rate for all workers, actively encourage entrepreneurship and invest much more in the future of the country,” according to Mr O’Brien.
“The policy of continuing to tax high-skilled workers at a penal 52% rate does not make economic sense and should be abandoned. These policy changes can be delivered while also reducing the deficit and debt levels, and prioritising balanced recovery across different sectors and regions,” he added.
The body wants the Government to take advantage of record low interest rates and invest up to 4% of GDP on infrastructure projects by 2020. It also wants a reverse to spending cuts in areas like education and research and a “sensible” review of public sector pay.
An overhaul of the taxation system for entrepreneurs is also being called for; with no lowering in capital gains tax rates and no equivalent to the PAYE credit having been addressed.
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