The Central Bank has made its biggest ever upward revision of growth but wants the Government to do "more than the minimum necessary" to bring thebudget deficit comfortably below 3%.
Finance Minister Michael Noonan is likely to have mixed feelings about the latest Central Bank quarterly review of the economy, released less than two weeks before he unveils the 2015 budget.
GDP growth has beenrevised from 2.5% to 4.5% for this year, which is the largest revision since official records began. However, the Central Bank seems to be siding with the EU Commission, the IMF and the Irish Fiscal Advisory Council in calling on the Government to implement more tax increases and spending cuts in the budget.
Central Bank chief economist John Flynn noted that Government debt remains very high. “The Government should take advantage of the windfall revenues to reduce debt,” said Mr Flynn.
However, Mr Flynn declined to say how much of a fiscal adjustment the Government should introduce on budget day. The troika wants the Coalition partners to do the full €2bn in consolidation. However, Mr Noonan has said on a number of occasions that the Government would pursue a broadly neutral budget.
There has been a growing clamour for tax cuts for lower and middle-income earners, along with spending increases, following better than expected exchequer figures for the first nine months of the year.
A Department of Finance spokesman said Mr Noonan would look at the Central Bank report over the next few days and it would feed into his budget decisions.
The Central Bank has made positive revisions to every key economic indicator. GDP is forecast to grow by 4.5% this year and 3.4% next year. GNP, which is a more accurate gauge of the domestic economy, is forecast to grow by 4.9% in 2014 and 3.1% in 2015.
Much of the improved performance stems from robust levels of exports, which are predicted to grow by 7.3% this year.
However, for the first time since the crash in 2008, the domestic economy is showing signs of life. Domestic demand is forecast to grow by 2.9% this year and 2.7% next year. The unemployment rate will fall to 11.1% this year and 10.3% next year, it added.
The Central Bank also confirmed that the chiefs executive of Bank of Ireland, AIB and Permanent TSB will travel to Frankfurt next week to have preliminary discussions with the ECB about the stress tests of the banking system.
Roughly half of the 100,000 mortgage arrears cases processed have reached agreement over sustainable payment solutions.
Central Bank governor Patrick Honohan said a corner had been turned.
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