Ireland's current budget deficit could worsen sharply unless corrective actions are taken quickly, the Organisation for Economic Co-operation and Development (OECD) warned today.
In its twice-yearly economic report, the Paris-based organisation noted the fiscal position had swung rapidly from a surplus of some 2 per cent of GDP in recent years to a deficit of about 1 per cent in 2002.
Appearing to agree with the Government's programme of wholesale cutbacks announced in the Estimates, the report said corrective actions were needed quickly to stop the budget deficit rising to over 2 per cent in 2004.
Significantly, the OECD said: "There is no room for another national wage agreement based on tax cuts".
It recommended a rise in public sector wages should only be granted against commitments to improve work practices.
The report predicted GDP growth, which has fallen back from an average annual rate of about 10 per cent over half a decade of boom, should pick up gradually from 3.6 per cent this year to 4.4 per cent in 2004.
It projected inflation is to "edge down" but warned if wage growth fails to decelerate there would be a further loss of competitiveness and slower growth.
It said: "The government needs to move quickly to bring the rapid growth of public employment and consumption under control so as to maintain needed improvements to infrastructure without increasing the budget deficit".
Despite a subdued global outlook, overall Irish business investment is expected to grow by some 2.5 per cent this year, rising to between 4 and 5 per cent in 2003 and 2004, while public consumption should fall sharply to 3.5 per cent by 2004 from 8 per cent this year.
Additional reporting by Reuters
