DUBLIN – The Irish Central Bank has sharply raised its economic outlook for Ireland but cautioned the government not to soften austerity plans in this month’s budget, the first to be unveiled since the country’s exit from an international bailout.
In its quarterly report Friday the bank said Ireland’s gross domestic product should grow by 4.5 per cent this year, driven by stronger-than-expected exports to its two biggest trading partners, Britain and the United States. The bank three months ago forecast 2014 growth at just 2.5 per cent.
But the bank cautioned Finance Minister Michael Noonan to emphasize more austerity measures in his 2015 budget being unveiled Oct. 13.
Noonan is under political pressure to make the 2015 budget more expansive after seven straight austerity budgets that have cut many workers’ net incomes by around 20 per cent. But the bank said this would send the wrong signal to global creditors, who have resumed lending at exceptionally favourable rates to Ireland following its December 2013 exit from a European Union-International Monetary Fund rescue loan package.
The bank said the government should use this year’s unexpectedly strong tax collections “to reduce debt more quickly, thereby easing the vulnerability that continues to result from the overhang of indebtedness.”
It said the 2015 budget “offers the opportunity to further solidify Ireland’s reputation for creditworthiness. It is important that this opportunity is taken.”
The bank said the government should impose “more than the minimum necessary” austerity measures as it cuts the 2015 deficit to well below its target of 2.9 per cent of gross domestic product and pursues the longer-term eurozone goal of achieving deficits within 0.5 per cent of GDP.
Noonan already has said that Ireland no longer intends to impose 2 billion euros ($2.5 billion) in new spending cuts and tax hikes in the 2015 budget, the target originally laid down by EU-IMF overseers, because of Ireland’s unexpectedly strong post-bailout return to growth. The government this week introduced an unpopular new water tax on households and risks a voter backlash in two byelections next week and national elections next year.
Central Bank bulletin, http://bit.ly/1uiPx2n