Minister for Finance Brian Lenihan today welcomed the upbeat assessment from the Economic and Social Research Institute (ESRI) for the Irish economy amid "the prevailing mood of pessimism".
Ireland's sluggish economy got a welcome boost this morning with predictions that it will grow by an average of 3.75 per cent a year over the next decade. The ESRI is also predicting 5 per cent growth in 2010.
The ESRI predicts that Ireland will continue to outperform its European neighbours in the growth race in the years to 2025. As a result, income per head of population in Ireland is projected to come close to 120 per cent of the EU15 average in the years 2020-2025.
“It is encouraging to see that the ESRI’s view that the medium term prospects for the Irish economy are generally positive. In contrast to the prevailing mood of pessimism, the ESRI shares my view in that we should see a return to trend growth from 2010 onwards," Mr Lenihan said.
“I share the view that economic conditions in 2008 and 2009 will remain weak and that sensible policies be pursued.”
Mr Lenihan added the Government would press ahead with the infrastructural development programme, and that discipline on expenditures would be critical over the next few years.
“The key message that we can take from the review is that Ireland’s economy is flexible and resilient.”
Referring to the ESRI’s observation that achieving the 2020 greenhouse gases target will be challenging, Mr Lenhihan said the Commission on Taxation is examining the question of a carbon tax.
Opposition parties welcomed the good news predictions but warned the Government it must take the right decisions.
Fine Gael’s finance spokesman Richard Bruton said last night that if the Irish economy was managed as badly in the next four years as it had in the last four under Brian Cowen’s stewardship the country would fail to meet its potential.
He said the report had highlighted the potential for the economy to recover and grow strongly into the medium term, but only if the right decisions were taken in the coming years on the big challenges such as cost competitiveness, public sector reform, the environment, infrastructure and the knowledge economy.
“In real terms that means not wasting public money on useless projects, keeping Government controlled costs down, delivering on key infrastructure for business — such as nationwide broadband rollout – and helping the economy regain its lean competitive edge,” he said.
"With two simple actions — rejecting the ministerial pay hike and reducing the number of junior Ministers in Government — Brian Cowen could have set an early positive example. Failure to act on these reasonable measures suggest that the Irish economy will continue to underperform with Mr Cowen at the helm,” he added.
Labour’s finance spokeswoman Joan Burton said the report was welcome and timely. “But there are still major difficulties facing the economy, and the Government has to navigate a course from the slowdown we are in now, to longer-term growth," she added.
“The challenge now is to maintain existing employment, protect living standards, and lay the basis for more and better jobs.”
She said there was “an urgent need” to ensure that people losing their jobs can avail of opportunities for education and re-skilling.
“To cushion the blow from the downturn in house-building, to meet an urgent educational need and to avail of an opportunity to get better value for taxpayers money, now is the time to launch a major programme of school building and extensions.”
In its Medium-Term Review 2008-2015, the ESRI says that while the economy is set to stutter this year and next, it foresees a strong economic rebound in 2010, when economic growth is forecast to exceed 5 per cent.
The institute's expectation is based on a pick-up in global economic activity and a consequent increase in the demand for Irish exports.
Even if the global credit crisis lasts longer than anticipated, the Irish economy is sufficiently resilient to bounce back to health once international demand revives, Prof John FitzGerald of the ESRI said yesterday.
The ESRI said the economy had entered a new phase of development. Market services - particularly business and financial services - are gradually replacing manufacturing as the engine of Irish economic growth.
Already, services exports account for 43 per cent of total exports. By 2025, the ESRI projects that market services will account for 60 per cent of net output or value added in the Irish economy and in excess of 70 per cent of all Irish exports.
Business and financial services, which are the fastest-growing components of market services in the Republic, are projected to employ more than 750,000 people, or some 30 per cent of the workforce, by 2025.
Despite the downturn in house building over the past year, the ESRI foresees a continuing solid demand for new homes in the years to 2025, due principally to population growth. Housing completions are forecast to average 48,000 annually between 2010 and 2020.
In the five-year period 2010-2015, real gross national product (GNP) is forecast to grow at an annual average rate of 3.8 per cent.