Package does little to change the bigger picture
It certainly is no gamechanger in the Government’s efforts to put the economy back on a path to a durable recovery. But in terms of optics, it is an important development and its significance should not be underestimated.
Davy Stockbroker economist Conall MacCoille notes that the €2.25bn injection into the economy is equivalent to 1.4% of GDP.
However, the investment will be spread out over a number of years.
About €850m of the total amount will come from the future sale of state assets, though there is still no timetable for this divestment programme.
The remainder will come from the European Investment Bank, the National Pension Reserve Fund, and private sources.
Crucially, there is still no clarity on where the private sector investment will come from.
The plan certainly has its drawbacks. As Mr MacCoille notes: “Gross voted capital expenditure was budgeted to equal €4.0bn in 2012 alone. So the €2.25bn announced, equivalent to just 1.4% of nominal GDP in 2011, will have a very small, marginal impact on the near-term outlook for Irish GDP growth.
“It is clear that at the very least the capital projects will be implemented slowly. And the capital expenditure budget will remain under pressure for the foreseeable future. The projects announced may merely displace other planned expenditures when examined in retrospect.”
The 13,000 jobs the Government says the plan will create is roughly the same as the 0.8% employment growth that has already been factored in for 2013. Moreover, the investment is focused on capital intensive projects mostly in physical infrastructure. But there is no investment earmarked for the telecommunications infrastructure, which will be crucial for the development of the smart economy.
But despite all the negatives, the Government needs some sort of a feelgood factor as it faces into another extremely tough budget this year. Since the previous government entered into an EU/IMF bailout programme in Nov 2010, the feeling among the electorate is that the country has lost all autonomy over spending, and at least this fiscal stimulus plan shows some signs of flexibility.
The real gamechanger remains whether Ireland can get a significant concession from the troika on bank debt. Yesterday’s announcement does nothing to change that.
