Dept of Finance: Economy at risk of overheating

The economy is currently operating below its potential, but will start growing from next year and could overheat, says the Department of Finance.

The department published two research papers on the productive potential of the economy. It found that the economy is operating marginally below its potential level in 2018 and there is additional capacity.

It said it is likely that the economy will reach and exceed its sustainable level of production in the coming years. The department said that is consistent with its view that the economy will soon reach full employment.

Finance Minister Paschal Donohoe said he noted from the reports that “the estimated output gap is forecast to turn slightly positive in 2019 and increases thereafter”. He said that pointed to signs of overheating in the medium term “which is something the Government is acutely aware of and remains cognisant of at all times”. He said the focus is on maintaining competitiveness-oriented policies “whilst avoiding pro-cyclical policy measures”.

“To this end, the Government is actively building capacity within the economy through increased public capital investment,” he said.