European Commission says sticking with austerity can leave crisis behind

Ireland’s growth should reach 3% a year from next year, offering a real hope of leaving the economic crisis behind, according to the latest forecast for the economy.

But there should be no let up in austerity budgets the European Commission warned, as it reduced the country’s growth expectation for this year.

Our recovery is the most robust of the crisis economies, but nothing can be taken for granted as the country’s immediate future depends on trading partners having good growth too.

A rise in the cost of energy poses a significant risk to our hard-won competitiveness because 85% of energy needs come from imports, the report says.

The pick-up in employment is the biggest indicator of a real recovery, according to the commission, but the huge debt as a result of the bank bailout continues to slow down the recovery.

The increased cost of servicing the €67 billion loans needed after the banking meltdown was more than met through the increased tax take last year and cuts in government spending.

The increase in the numbers of people at work is increasing the tax take and reducing the sums paid out in unemployment benefits, giving a significant boost to the economy, the report says.

And while the Government’s budget deficit will be around 1.7% this year — down a percentage point — the forecast is for an increase from their previous forecasts for next year to just shy of 3%.

The figures were welcomed by Finance Minister Michael Noonan, who said they were particularly pleased with the growth rate for 2015, expected to be 3% right up to 2020. “They’re the kind of growth rates that will enable us to fulfil the medium-term economic programme we have laid out,” he said while in Brussels for a meeting of EU finance ministers.

He agreed that events outside the control of the Government — such as a rise in energy costs and growth in trading partners — was a constant fear. “There’s not a lot of action we can take to change those uncontrollable risks,” he said.

They were working very hard to improve the credit flow as the lack of credit can hinder growth, he said. But the number of mortgages for those wanting to buy houses had increased considerably and credit flow was improving, he added.

The spring forecast said that recovery was spreading across the EU, including most of the vulnerable member states. In the fourth quarter of 2013 only four countries still registered negative growth compared to 15 a year earlier.

Economic expansion is set to continue and gain strength, with real GDP expected to rise above its 2008 level for the first time at the end of this year and in the course of next year in the euro area. But in some vulnerable countries, GDP will remain far below pre-crisis levels.