The Government believes the acceleration in economic growth will provide scope to deliver a more ambitious tax and investment package in the budget next autumn, its last before the election.
As new figures showed the economy grew by 4.8 per cent in 2014, an informed political source said the current official forecast for a 3.9 per cent advance in gross domestic product this year was likely to be upgraded in the spring economic statement next month.
The 3.9 per cent forecast was set last October, well before the most recent declines in the euro’s valuation and the price of oil set in.
Both of these factors are now expected to boost growth this year, but Ministers also expect the State to receive an initial return from the sale of some Allied Irish Bank shares this year and from an interim payout from the Irish Bank Resolution Corporation liquidation.
The Coalition also calculates that the European Central Bank’s stimulus plan, which took effect this week, will lead to improved economic activity throughout the euro zone. This is crucial as stagnant conditions in the single-currency area can constrain Ireland’s recovery.
Welfare spend
An upgrade in the Irish growth forecast would reflect expectations within the Government that buoyancy in tax revenue and job creation is set to continue, along with lower welfare expenditure.
Such a move is not yet certain, but it would provide additional fiscal leeway to Minister for Finance Michael Noonan as he prepares the 2016 budget. Mr Noonan has been campaigning for budgetary concessions from the European Commission to increase investment expenditure in the next budget .
The growth rate in 2014, Europe’s fastest, indicates that the economy shifted into a different gear after a prolonged slump, with activity in the domestic economy advancing as the multinational sector continued to deliver a strong performance. “Every sector is recording positive growth, without exception,” said Michael Connolly of the Central Statistics Office
The Government’s official position is that the acceleration in GDP last year was consistent with forecasts last autumn. But Mr Noonan said the Government will publish “updated forecasts for 2015” in the spring statement.
“Economic growth is now more broadly balanced, exports are contributing due to competitiveness gains while the domestic economy is now also contributing positively too,” said Mr Noonan.
“The turnaround that we are seeing in the Irish economy is a direct consequence of the policies pursued by this Government and the sacrifices made by the Irish people. All sectors of the economy grew last year, including agri-food, tourism, retail, construction, as well as business and financial services. We will now build on this recovery by continuing to introduce measures that drive growth and create jobs.”
Trading links
Fergal O’Brien, head of policy at business lobby Ibec, said a number of international developments will boost the Irish economy this year.
“The dramatic fall in the euro will boost Irish exports more than most other countries. Ireland’s exports outside the euro zone are equivalent to 66 per cent of GDP, compared to an EU average of around 35 per cent. As a result Ireland’s economy looks set for another year of strong growth.”
Alan McQuaid, economist at Merrion Stockbrokers, said Ireland continues to take the benefit from its close trading ties with the US and Britain, two of the world’s strongest economies .
“Competitiveness gains made against the rest of Euroland in recent years have also helped. But the most encouraging aspect is the pick-up in domestic demand, which augurs well for 2015,” said Mr McQuaid.
“The sharp fall in the euro will be a huge plus for Ireland too. Taking all the relevant factors into consideration, it now looks like growth will be 4 per cent plus again this year.”
