Numbers at work to rise by 70,000 over two years, committee told

The number of people at work is expected to grow by 70,000 this year and next, Central Bank chief economist Gabriel Fagan has said.

He added unemployment was expected to decline towards 7 per cent. The bank was forecasting GDP growth of just under 5 per cent this year and 3.6 per cent next year, he said.

“Supported by continued gains in employment, underlying domestic demand is projected to grow at 4 per cent this year, slowing to 3 per cent in 2017,” he added.

Mr Fagan said the slowdown reflected the projected negative impact of Brexit-related factors, as well as some normalisation of the of the catch-up growth, seen in earlier years, and the fading of the positive effects of lower oil prices on household real incomes.

“Notwithstanding this slowdown in domestic demand, the outlook for the Irish economy remains broadly favourable, with unemployment set to continue to fall further,’’ he added.

Mr Fagan was addressing the new Oireachtas Committee on Budgetary Oversight which is holding hearings in advance of next month's budget.

The committee is chaired by Fine Gael TD John Paul Phelan.

Mr Fagan said assessing the outcome for the economy was complicated by the Brexit referendum in the UK. It was clear, he said, the impact on the Irish economy would be “negative and material, both in the short-term and in the long-term’’.

He said the indicators suggested the domestic economy continued to expand at a reasonably healthy pace.

“In particular, consumer spending has continued to grow at a relatively strong pace, supported by solid gains in employment and rising earnings,” he added.

He said a better reflection of what was happening in the domestic economy was provided by underlying domestic demand, an indicator recently developed by the bank. That grew at a strong pace, close to 5 per cent in 2015, he added.

Mr Fagan said there had been a rise in employment of 2.5 per cent in the past year.

However, such estimates were only “rough approximations”, he added, and there was a need to develop more meaningful, commonly-agreed measures on the level of Irish economic activity which accurately mirrored developments in the economy.

The bank, he said, welcomed the initiative by the Central Statistics Office (CSO) to establish a consultative group which would consider, among other things, the potential for the development of new indicators which would enhance an understanding of the Irish economy.

The group, he said, would be chaired by the Central Bank governor Philip Lane.

Dr Tom McDonnell, senior economist at the Nevin Economic Research Institute, said the Universal Social Charge (USC) brought in €4 billion annually.

He said the €11.3 billion in fiscal space over the next five years looked like a lot of money, but price and demographic and other pressures would feed into that.

Given that maximum effective tax rates for low and middle earners were not particularly onerous by international standards, it was not clear to him what the economic rationale was for dismantling the USC, Dr McDonnell added.