Central Bank governor warns Budget plan risks overheating economy

'There’s a risk that we’re in the wrong place,' said Gabriel Makhlouf

The government’s budget plan risks overheating the economy, Central Bank governor Gabriel Makhlouf has warned. Picture: Paulo Nunes dos Santos/Bloomberg

Central Bank governor Gabriel Makhlouf has warned the Government’s new budget plan risks overheating the economy.

“There’s a risk that we’re in the wrong place,” Mr Makhlouf said in an interview with the Business Post.

The Government outlined its spending plan for the next budget, likely to be unveiled in October, in its summer economic statement in July. It’s made up of a €9.4 billion tax-and-spending package and the Government also signed off on a €112bn revised infrastructure plan to run until 2030 to tackle housing, energy, and water constraints.

“Hopefully, the summer economic statement is not the budget, and hopefully, by the time he gets there, he will have reflected again on what the trade situation is telling us,” Mr Makhlouf said, referring to Finance Minister Paschal Donohoe.

“For an economy operating at full employment, we’re adding more stimulus to the economy than it needs – and I would look again at what we’re planning to do,” he said.

Mr Makhlouf said the plan to not include one-off measures such as tax cuts and increased welfare payments like its last package is “sensible,” adding that such measures are inflationary.

Announcing the summer economic statement on July 22, Mr Donohoe stressed how uncertainty from tariff announcements could impact their spending plans.

Tariffs are weighing heavy on Ireland’s small, open economy which hosts the tech headquarters and manufacturing bases for a large number of US multinationals including Apple and Eli Lilly. US president Donald Trump’s repeated vows to re-shore the assets of such companies has raised questions about what would happen to the corporate tax intake if multinational investment slumped.

Mr Makhlouf said there was “nothing new” in the trade deal that was reached between the European Union and the US last week, but said that it reinforced that tariffs will be imposed.

“It’s just underlining that actually, you do need to take care now — because the hope that we were going to get some 0% tariff thing, it’s just not going to happen,” he said.

Mr Makhlouf said Nr Donohoe had “more certainty” on how to plan the budget in the months ahead following the announcement of 15% tariffs for EU exports into the US last weekend.

As Ireland’s central bank chief, Mr Makhlouf also is a member of the European Central Bank’s Governing Council.

Commenting on borrowing costs, Mr Makhlouf said they are now at a level where policymakers can play a “wait-and-see-game” on future interest-rate decisions, echoing earlier remarks.

Bloomberg