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Central Bank cuts growth forecast and tells govt: Don't ease-up on austerity

The bank has also cut its forecast for growth of the country’s economy or gross domestic product from 1.2 per cent this year to 0.07 per cent blaming the falls in the export of goods and services.

Michael Noonan
Michael Noonan
Image: Sasko Lazarov/Photocall Ireland

THE CENTRAL BANK has warned the government to stick to the planned fiscal adjustment of €5.1 billion over the next two budgets in its latest quarterly economic bulletin released today.

The bank has also cut its forecast for growth of the country’s economy or gross domestic product from 1.2 per cent this year to 0.07 per cent blaming the falls in the export of goods and services.

The warning comes as the government considers the possibility of easing up on the plan to take €3.1 billion out of the economy in the October budget through a combination of spending cuts and tax rises.

The estimated €1 billion savings achieved as result of the abolition of the promissory note arrangement earlier this year has given ministers hope of easing up on austerity.

But Finance Minister Michael Noonan has said he will have a clearer idea of the fiscal adjustment that will be needed by September.

The Central Bank’s view is: “The faster the needed fiscal adjustment is concluded, the stronger and more secure will be the platform for building the recovery in employment and income.”

“Ireland’s deficit and debt levels remain very high and full implementation of the planned fiscal adjustment of €5.1 billion, as scheduled for 2014 and 2015, is a valuable key in maintaining the confidence of international lenders and will also help build a buffer against potential shocks”

Noonan told reporters today that the government still intended to take around €5 billion out of the economy over the next two years but did say there was scope for flexibility emerging.

His junior finance minister Brian Hayes told this website yesterday that the government needed to focus on reducing the deficit to around four per cent by the end of next year in order to ensure an orderly return to normal lending markets.

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“As we are going back to the markets at the end of this year. We’ve got to back on a sustainable basis. We need to stay in the markets,” Hayes said.

Fianna Fáil cautioned against deep cuts in the forthcoming budget in its reaction to the Central Bank forecast today saying that taking too much money out of the economy would dent consumer confidence.

The party’s finance spokesperson, Michael McGrath, said: “There is a strong argument for moderating the 2014 adjustment, and spreading the remaining tax and expenditure measures move evenly over the next years.”

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