Government can meet deficit target with ‘€500m adjustment’

The Government can hit next year's deficit target with a budget adjustment of just €500 million, Dublin-based stockbroking firm Investec has said.

In its latest Irish Economy Monitor, Investec said better-than-expected exchequer numbers were providing a "strong tailwind as we head towards October's Budget".

As a result, a €500 million fiscal consolidation was required in order to meet next year’s budget deficit target of 3 per cent while maintaining a buffer to guard against any adverse shocks.

Investec said the positive momentum in consumer spending was a key factor behind the outperformance of the public finances, noting that so-called “big ticket” items such as cars and furniture were trading well.

The group said the domestic economy was picking up but exports remained “an integral part of the overall growth story”.

It said the broad nature of the recovery was reflected in the fact that the three Irish PMIs - services, manufacturing and construction - have been simultaneously above 50, which denotes expansion, since September 2013.

Investec also said it was encouraged by the positive trends in the labour market, noting the economy had added jobs for six successive quarters.

“The employment component of each of the PMIs suggests that these trends have further to run,” it added.

The report also noted that the recovery in house prices had spread beyond Dublin with the latest official data showing prices rising nationally by 5.4 per cent in the year to date.

“Brighter prospects (on the whole) for Ireland’s key export markets and favourable currency moves are aiding Irish exporters,” Investec chief economist Philip O’Sullivan said.

He said the impact of the patent cliff on merchandise exports, which has acted as a drag on economic growth, appeared to be easing, with industrial production and import data pointing to an upturn for the pharmaceutical sector.

"All in all, Ireland continues to move forward. We see gross domestic product rising for a second successive year in 2014, with further growth envisaged in 2015."