‘No danger’ of economy overheating

The economy could grow by as much as an “above trend” 4.4% this year, one economic think-tank has said.

In its latest quarterly economic commentary, the Nevin Economic Research Institute said strong employment growth should boost GDP by 4.4% in 2017, with the rate of growth slowing to 3.3% next year and 3.2% in 2019.

Robust employment growth of 3.4% this year will lead to the unemployment rate dropping to below 6% by early 2018, the institute said.

While inflation will remain “subdued” in the short-term, the institute said wage pressure and strengthening domestic demand should start pushing prices upwards in the next year and a half.

While all commentators see the economy solidly growing in the short term, the institute’s outlook is more bullish than most. Only the Department of Finance and the European Commission see growth this year of around 4%.

The ESRI, the last commentator to make a forecast before the institute, said last week it sees GDP growing by 3.8% this year and 3.6% next.

The institute said that Ireland’s export and import performance should remain strong despite uncertainty related to Brexit, US trade policy, and currency fluctuations making it difficult to project trade flows.

“Exports should benefit from the moderate growth expected in the Republic’s main trading partners while underlying imports will grow strongly on the back of robust growth in domestic incomes and underlying domestic demand,” the institute said in its commentary.

It said it sees no evidence of the economy being in danger of overheating.

However, it called on the Government to spend on infrastructure, education, and R&D, saying the country currently “significantly underspends in a number of areas fundamental to long-run economic growth”.

To this end, the institute has put a value of €2.5bn-€3bn on Ireland’s ‘under-spend’ in these areas compared to other EU members, on a per capita basis.

“The best way to Brexit-proof the economy is to boost its long-run productive capacity. That means investing in our infrastructure, our people and new ideas.

“If we are to prosper in the future we will need to invest in our future,” said the institute’s senior economist Tom McDonnell.

The institute’s director Tom Healy added: “There is no economic case for tax cuts over the next three years, particularly given existing spending deficits and future spending pressures.”

The institute also expects a narrowing between housing supply and demand over the next year.


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