End of austerity may be in sight, predicts ESRI

The Government may be in a position to end its long sequence of austerity budgets as early as next year if the current growth projections for the economy materialise, the Economic and Social Research Institute (ESRI) has said.

Minister for Finance Michael Noonan took a more cautious line when introducing the Government's medium-term economic strategy yesterday but said the indications were the budget adjustment for next year would be less than the €2 billion planned.

Reducing the deficit
The ESRI in its latest quarterly commentary said the Government could achieve its troika-agreed target of reducing the deficit to 3 per cent of gross domestic product (GDP) by 2015 with a "neutral budget" next year.

However, the economic think tank warned this was heavily contingent on continued economic recovery here and in the Republic’s main export markets, particularly the euro zone where GDP growth remains notably fragile.

“There is a reasonable chance we’ll be under 3 per cent in 2015 even with a neutral budget next year,” said John FitzGerald of the ESRI.

The institute’s analysis is at odds with the European Commission’s recent suggestion that the Government would need to make a €2.5 billion adjustment in next year’s budget to achieve its fiscal target for 2015.

In its latest report out today the ESRI has delivered one of its most upbeat assessments of the health of the economy since the crash, insisting Ireland had finally “turned the corner”.

It said there was now a noticeable pick-up in domestic demand, the first since the crisis began, which it predicted would grow by a modest 0.9 per cent this year. Combined with the continuing stimulus from the export sector, it predicted the economy would grow by 2.7 per cent next year, significantly ahead of the Department of Finance’s own projection of 2 per cent.

It said the labour market, which is on course to create 60,000 new jobs this year, provided the “most useful indicator” of activity in the economy.

The ESRI said it has revised upwards its estimates for employment growth this year to 2.5 per cent.The Government meanwhile in its post-bailout economic strategy published yesterday focused on ambitious growth levels and a return to the employment levels that prevailed during the Celtic Tiger years.

Growth rates
The 66-page document entitled A Strategy for Growth set out the Government's plans until 2020 predicting growth rates of above 3 per cent from 2017, a zero general government balance by 2020; and unemployment falling from the present levels of 13.5 per cent to 8 per cent within six years.

It also made a commitment to attaining full employment by the end of the decade bringing the number of jobs in the economy to the 2.1 million that prevailed in 2008.

Taoiseach Enda Kenny said 2014 would be the “year for jobs” in Ireland. “Everything that can be done to accelerate the labour market will be done,” he said at the launch of the document in Government Buildings in Dublin.

The Opposition parties were critical of the plan with Fianna Fáil finance spokesman Michael McGrath saying it was “deeply disappointing.” He described it as a “missed opportunity”.

Speaking in Brussels last night Mr Noonan rejected claims the plan was short on detail. The framework comprised “50 pages of detail,” he said. “It’s not one of these PR marketing economic policies that we got used to in the past. This is a framework of detail, but of course agencies and Government departments now will bring out fuller policies in their own sectors which will fit within the framework.”