ESRI warns plan could overheat the economy

A leading think-tank has warned the Government’s plans could potentially add too much fuel to the economy and lead to another bust.

ESRI warns plan could overheat the economy

Kieran McQuinn, research professor at the Economic and Social Research Institute (ESRI), said the additional public funds amounting to €116bn over 10 years come at a time when the economy is already booming.

The ESRI — whose staff played a significant role in framing the draft of the National Development Plan — and other watchdogs, including the Irish Fiscal Advisory Council and the Central Bank, have long warned about the risks of the Government pumping too much into the economy. They say, however, that the economy is not overheating at this time.

Mr McQuinn told the Irish Examiner that the plan represented a significant amount of money going into the economy which would require economic growth of 3.5% over the next 10 years for it to work. However, he believed the dangers lay more with the potential for overheating that could lead to another crash.

Mr McQuinn said activity was picking up strongly in the home-building and office construction industries.

Edgar Morgenroth, a professor at Dublin City University who helped advise on the framework of the draft while at the ESRI, said the plan relied on boosting large urban centres, including Cork and Dublin, without encouraging sprawl.

“Cork and Limerick (cities) have the potential to double their size. In other countries, they would be bigger,” Mr Morgenroth said, citing the large size of secondary urban centres in Denmark.

Boosting growth in centres was important but there was evidence that building motorways such as the proposed upgrade of the Cork to Limerick motorway would only encourage sprawl and work against concentrating growth in those cities.

On the €116bn investment, Mr Morgenroth said that politicians in the past had worked hard on the presentation of development plans.

“The aim of the exercise is to make the number look big enough,” he said.

Chris van Egeraat, who lectures in economic geography at Maynooth University and was part of an advisory group on the draft of the plan, said “the real political game” now begins, as regions outside of the big cities pitch to tap some of the resources.

He said he believed in the long-established principle of “concentrating” growth in a small number of urban centres but had argued for the inclusion of Sligo due to the underperformance of the north-west of the State in terms of economic and population growth.

Dr van Egeraat said the potential of including centres outside of the big centres would mean that the IDA would be encouraged to fight for foreign direct investment (FDI) on their behalf.

“FDI is important. It will not go to rural areas, only to centres,” he said.

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