Ireland’s economy will grow again strongly this year and any new government can look forward to tapping solid growth in tax revenues — as long as the worst fears over a Brexit and the global economy do not come true, according to new Department of Finance key projections published last night.
The new forecasts are prepared for the Brussels mandarins under Ireland’s ‘Stability Programme’ and incorporate the department’s Spring projections that update the country’s economic and fiscal sums for the first time since last October’s budget.
However, the department’s new projections for 4.9% GDP growth this year — up by around half a percentage point since October’s budget — and expansion of 3.9% in 2017 appear to err on the conservative side because of the range of exceptional external risks facing the economy.
“There are numerous sources of uncertainty at present” facing the economy, including the threat of the UK voting in its looming referendum on June 23 to exit the EU, as well as big fears about the health of the global economy and China, the department said in its new forecasts.
Despite many economists believing the government will easily beat its own budget fiscal targets this year, the department left unchanged from October its key forecast that it will collect just over €47 billion in tax receipts for the whole of 2016.
The department’s forecasts show that it expects lower costs on servicing the national debt to help offset Ireland’s increased contributions to the EU budget.
“The forecasts are conservative but they are right to be conservative given the risks over Brexit, sterling’s weakness and the global economy,” said Alan McQuaid, chief economist at Merrion Capital.
However, any new administration should have a good “tailwind” should such global fears not be realised, Mr McQuaid added.
The department’s growth forecasts fall slightly to the low end of other official forecasts. The Central Bank of Ireland recently raised its GDP forecasts to 5.1% this year and to 4.2% in 2017, while the IMF projects the economy will grow 5% this year.
GDP surged by 7.8% last year.
The department’s forecasts suggest that unemployment will take some time to fall. It sees the jobless rate averaging 7.8% in 2017 and still remaining comparatively at the elevated level of 6% through 2021.
“While the central scenario for economic activity in Ireland over the next 18 months or so is a reasonably benign one, internationally the level of uncertainty is higher than at any stage since the height of the financial crisis,” the department said.
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