Another austerity budget taking at least €2bn out of the economy will be needed to make sure government spending is cut to the 3% deficit target for next year.
Without this, Ireland is set to miss the all important spending target, especially with overruns in health costs continuing to pose a threat, according to the European Commission’s economic forecast.
The economy will grow more strongly than expected, with unemployment dropping and a slightly greater increase in jobs than Brussels forecast just four months ago.
They placed a question over the country’s growth for the next year, and what they termed “effective implementation of the 2014 budget”.
They referred in particular to the health sector and the overruns in their budget in the past.
They also raised the issue of the Government having to compensate any possible shortfall in the asset sales linked to the winding up of the IBRC.
A department spokesperson said there was unlikely to be shortfall as recent sales had gone over valuation.
The Department of Finance confirmed they will need to take at least €2bn off government spending in the budget for 2015, and said they expect this will ensure they hit the 3% target.
Overall, while Economics Commissioner Olli Rehn is reluctant to say the crisis is over, he concedes that a modest recovery is gaining ground, and spreading across all countries in the EU.
The department welcomed the news that the Commission expects the economy to grow by 2.9% next year — more than the 2.3% forecast by the Government. This is the seventh highest rate of growth in the EU overall, the same as expected for Greece.
Ireland and Spain, said Mr Rehn, have inspired confidence in the markets that had spurred a wave of interest in the markets lending them money at lower rates.
He welcomed that Ireland was seeing “increasingly robust employment growth”, and forecast a greater number of people at work this year and next than they believed could be the case a few months ago.
This year all but two EU economies — Cyprus and Slovenia — are expected to grow while next year he expected every country to be growing, bringing the average to 2%. The USA growth is put at 3.2% for 2015.
“The worst may be behind us but we must not be complacent. All this assumes the continuing adoption of policies to continue adjustment,” he said.
One of the areas of concern Mr Rehn raised was that real interest rates had risen since autumn, which could affect debt dynamics — which could make rebalancing harder.
Next Wednesday, the European Commission will look more closely at areas of reform especially for the former programme countries like Ireland and Spain, and others that need to strengthen domestic demand.
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