The latest economic forecasts from the Department of Finance highlight the difficulty of making predictions in such an uncertain world. Based on current strong economic indicators, the department is entitled to increase its growth forecast for 2017. As the document itself says, however, more than the usual level of uncertainty must surround these forecasts, given the move to Brexit and the unpredictable nature of US economic policy.
The good news is that the initial hit to economic growth following the Brexit referendum did not persist. The weakness of sterling impacted some Irish exporters but, for now, the overall momentum evident in the economy shows no sign of subsiding. However, the Brexit threat remains real, particularly over a timescale of two to three years.
The annual budget process will now slowly grind into action, with the forecasts – contained in what is known as the stability programme update – presented to the Dáil budget oversight committee and also sent to the European Commission.
In a couple of months the Government will publish a Summer Economic Statement in which it will clarify the direction of its budget policy. However, one thing is now clear. The room for manoeuvre in Budget 2018 will be limited. The carry-over impact of existing spending commitments is significant. Although a full estimate of the pre-budget position will only be made in the summer statement – and a continuation of buoyant growth could improve the figures – scope for new tax cuts and extra spending will be limited.
The indications in the document published yesterday are that the Government will take a cautious approach, thus trying to boost the resilience of the economy in the face of any economic shock. We must hope that this is carried through when Budget day comes and not lost in the inevitable pressure on spending in the months ahead.
Lying behind all this, of course, is a high level of political uncertainty. The Taoiseach is expected to step down at some stage in the coming months. Budget policy is likely to differ, depending on who takes over. A Cabinet reshuffle is likely. And though the immediate threat of a general election over water charges appears to be receding, one can by no means be ruled out.
The Government has clearly grown more precarious over recent months. It is a poor backdrop against which to plan a budget. A report today from the National Competitiveness Council underlines the longer-term issues that need to be addressed – from boosting investment to improving competitiveness. But can we expect any real progress on these issues in the current fraught economic circumstances where short-term goals and populism appear to take precedence? Tackling these issues requires decisions to be taken with a longer-term perspective. For now, this simply does not seem possible.