This week, the Paris-based Organisation for Economic Co-Operation and Development (OECD) published its latest survey on the Irish economy and it makes for pretty constructive and optimistic reading.
It is forecasting growth of 5% in GDP this year and 4% in 2016.
These growth forecasts are very strong, but have become outdated following the publication of official growth data for the second quarter of the year, published by the CSO just before the OECD report.
The second quarter growth data were incredibly strong and suggest that growth of at least 6% in gross domestic product (GDP) looks very attainable this year.
In the first six months of the year, GDP expanded by 6.9% and gross national product (GNP) expanded by 6.6%.
All components of activity have shown strong growth in the first half. Personal consumption of goods and services expanded by 3.3%; gross domestic fixed capital formation (basically business investment spending and construction output) expanded by 21.7%; exports of goods and services expanded by 13.8% and imports of goods and services expanded by 16.2%.
These growth numbers are very strong and show that, since the final quarter of 2007, the Irish economy has experienced the fastest growth in the developed world. The level of GDP and GNP has now surpassed the levels of economic activity seen in 2007, just prior to the crash.
This is a remarkable achievement following such a calamitous economic crash and the very severe fiscal adjustment programme that has seen significant pressure on public expenditure and a very severe increase in the personal sector tax burden.
This is not to suggest that all of the problems in the Irish economy are solved. There are still significant issues to work through.
The quality of vital public services such as health and education is under severe strain due to structural issues as well as inadequate funding.
The personal sector is still pressurised due to the tax increases seen since 2007, the lack of any growth in average earnings (at least until very recently), and a substantial level of debt overhang, particularly on the mortgage front.
Unemployment is still too high, and the OECD picked out long-term unemployment and unemployment among the lower educated as particular challenges for Ireland that will require a lot of attention.
Although declining at a significant pace, the level of government debt is still very onerous, and it is more than galling to hear a former IMF official who had responsibility for the IMF part of Ireland’s troika programme suggesting at the banking inquiry that Ireland had been forced to take too much of the burden at the insistence of the EU.
This is scant consolation.
There is also considerable work still to be done on restoring a functioning and competitive banking system.
Notwithstanding these challenges, progress is being made and healthy levels of economic growth are essential to generate the resources necessary to tackle these and other challenges.
The OECD has issued policy recommendations that it believes will put the Irish economy and Irish society in a much better place.
These include the need to continue to reduce the budget deficit, and it recommends improving the efficiency of health spending by fully implementing the concept of ‘money following the patient’; a further broadening of the tax base by shifting the burden of taxation to immovable assets; reducing capital allowances; and implementing recent OECD recommendations in relation to corporation tax and transfer pricing.
It makes recommendations aimed at improving the incentives to work, including improving access to and affordability of quality healthcare.
Much more is included, and should be looked at closely by every sensible political entity contesting the general election.
Last week’s growth data and this week’s OECD report should give a bounce to the parties of government, but they should not become complacent and take the foot off the pedal by engaging in populist policy promises.
Sensible policy has got us to where we are, and following the advice of the OECD could get us a lot further.
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