The Central Bank has delivered its most upbeat assessment of the economy in six years as robust exports and improving domestic demand prompt upward revisions to growth for 2014 and 2015.
GDP growth has been revised up to 2.5% this year and 3.3% for next year. These forecasts have been upgraded by 0.5% and 0.1% respectively since the last quarterly review of the economy. GNP is now seen at 2.8% this year and 2.7% for 2015.
The unemployment rate is expected to fall to 11.4% by the end of this year and 10.5% by the end of next year. The main driver of growth will be exports, although domestic demand is also expected to increase this year.
Central Bank head of Irish economic analysis, John Flynn, declined to say whether the Government should implement budget cuts of less than €2bn or whether there was room for tax cuts for middle-income earners.
“The priority has to be to reduce the deficit safely below 3%.” Mr Flynn said it was not possible to quantify at this stage what quantum of adjustment would be needed to achieve this target. Moreover, it was not the role of the Central Bank to recommend tax or spending policies, he added.
The Irish Fiscal Advisory Council, the European Commission and the IMF have all urged the Government to implement budget cuts of €2bn in October in order to reach a 3% budget deficit agreed with the troika by the end of next year. The Government has signalled that it intends to do less than the €2bn on the back of better-than-expected exchequer figures and would look to introduce tax cuts for middle income earners if possible.
Mr Flynn said that cause of house price increases was mainly due to a lack of supply. There were a relatively small number of transactions and half of these were cash purchases. “Credit is not at the heart of what is driving this,” he said.
The liquidity and funding positions of the banking system are both improving, although much more progress has to be made in the resolution of impaired loans.
The banks are currently undergoing asset quality reviews and stress tests as part of the ECB’s assessment of the banking system.
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