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Sure the economy is getting boomier, but it could be a long time until most people feel it

So much for being the “poster child” of Europe.

Image: Sasko Lazarov/Photocall Ireland

IRELAND’S ECONOMY WILL continue to lead Europe in growth, but it could be years until the government is able to relax the purse strings and people feel the benefits of recovery.

That downbeat assessment comes from Ernst & Young (EY), which offered a more pessimistic forecast for the country’s finances next year in the face of “challenging global trading conditions”.

The financial advisory firm said it expected Ireland’s final GDP growth this year to be a lofty 4.8%, but for that to slow next year to 3.3% as exports rolled back.

And despite Ireland outpacing the rest of the eurozone for the past 3 years, EY warned the country’s underlying growth – or the long-term economic trends – would probably be weaker than all the positive numbers suggested.

EY economic advisor Professor Neil Gibson said neither businesses nor the government could afford to be complacent despite the good growth figures.

A number of headwinds are likely to moderate growth from the 2014 levels and many businesses and individuals are yet to feel any real sense of recovery,” he said.

EY Source: EY Economic Eye Winter Forecast 2014

Several years off a giveaway budget

EY said the 2014 figures showed reassuring growth in investment, consumer spending and full-time employment, but Ireland’s remained “hugely dependent” on exports and there remained “key risks” like the threat of deflation in the struggling eurozone.

Economic growth figures for Ireland were artificially inflated by multinationals’ profits and the boost from so-called “tax inversion” deals, it said.

Inversions involve overseas companies, often from the US, buying out smaller firms based in the Republic in order to shift their tax bases to Ireland.

Gibson warned it could be several years before the government handed down a more voter-friendly budget despite Ireland being the “poster child of the eurozone crisis economies”.

At first glance one might expect (Ireland) to now be able to relax the purse strings as its public finances are in better shape, but the reality is with high debt and EU rules, even with its deficit under better control, (it) is not going to be in a position anytime soon to have a more expansionary fiscal policy,” he said.

EY’s growth economic growth expectations for Ireland next year are lower than those of the European Commission, which recently predicted a 3.6% figure, and even-more bullish predictions from groups like business lobbyists IBEC, which forecast 4.5% growth.

However its forecasts showed the Republic’s economy would still outstrip those of the UK and Northern Ireland for the next decade.

READ: Construction work was on the up again last month (and firms are hiring) >

READ: Business Poll: So this year’s coming to a close – but how is 2015 looking? >

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About the author:

Peter Bodkin  / Editor, Fora

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