Midway through the financial year many of Ireland’s key economic indicators have turned positive. The economy has expanded strongly in the first three months – with GDP up 2.7 per cent on a quarterly basis. Unemployment continues to fall, dropping last month to 11.6 per cent of the Live Register total (a two-year low) and the public finances are slowly improving. The latest exchequer returns - for the six months to June – indicate tax revenue is running some €500 million ahead of Government projections, reflecting increased employment and a more buoyant economy. And the outlook for the rest of the year remains broadly encouraging.
For the Government, the increasing evidence that the recovery is firmly under way also puts it under more public and political pressure to ease up on austerity measures in the 2015 budget. There, a further €2 billion adjustment – via spending cuts and tax rises – is scheduled. And the strong advice from the Central Bank, IMF, European Commission and the Irish Fiscal Advisory Council has been to meet that target. However, Ministers have already indicated that they may not do so, and suggested that a smaller adjustment may suffice to achieve a budget deficit under 3 per cent of GDP in 2015, which is an EU requirement. This argument will be reinforced by the statistical changes announced by the Central Statistics Office yesterday, which shrink the size of the public deficit for accounting purposes.
At the mid-point of the financial year, it is too soon for the Government to assume that the benign economic scenario now unfolding will continue without setback or reversal. A coalition government that has suffered such a huge setback in the recent elections will be anxious to regain lost ground, and to recover lost support. But the economy, like the weather, is difficult to forecast for much beyond the short-term. And a gamble on economic recovery in a bid to improve the Coalition parties’ re-election prospects, is a political temptation that should be resisted, and a risk to be avoided at all costs.
