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All issues around competitiveness need to be managed prudently to ensure resilience
The Irish economy delivered a strong and increasingly broad-based recovery in 2015. The impact of a number of external developments on Ireland’s economic performance in 2015 cannot be underestimated. These include:
This strong momentum has carried over to 2016 and the prospects for the remainder of this year look positive.
Commenting on this, Jim Power, Chief Economist with Friends First states, “These external factors, all totally outside of the control of Irish policymakers, helped ensure that the Irish economy delivered a strong and broad-based recovery in 2015. All components of economic activity should strengthen in 2016 as the year progresses and at this early stage GDP growth of at least 4.5% looks achievable.”
The external risks also now include China, the continued weakness of the Euro Zone, US monetary policy, global geo-political uncertainty, terrorism and the June 23rd UK referendum on Brexit. On the domestic front, the key risks and challenges include sovereign and personal debt, growing wage pressures as well as improving the quality and quantity of public services in an environment of scarce fiscal resources, and political instability following the February 22nd general election.
Consumer confidence levels have steadily improved over the past couple of years and the impact of this is now feeding into stronger consumer spending. Although consumer confidence fell at the start of 2016, due to the impact of domestic political uncertainty, Brexit and global growth concerns, consumer spending should be boosted by a further improvement in personal disposable incomes of at least 6%. Personal consumption should expand by around 4% this year.
Housing still remains a major issue. Lack of supply of social housing, owner-occupied housing and rental properties are significant economic and political issues at the moment. Despite some improvement, the level of house building is still considerably below requirements. Policymakers will have to act decisively to increase the supply of housing in the short to medium term. There is no single “silver-bullet” approach to solving this but rather a combination of measures to be considered such as a vacant site levy, changes to the planning process and the possible relaxation of Exchequer costs to housing delivery. In addition, mandatory mortgage insurance for first-time buyers could ameliorate the impact of Central Bank lending restrictions.
“While the prospects for Ireland in 2016 look positive, it would be naïve and dangerous to become complacent. The global economic and financial backdrop is very uncertain and risky at the moment and Ireland cannot remain immune to these forces indefinitely. Careful and prudent economic and fiscal management is now essential, rather than the extravagant political promises that were made in the heat of a difficult electoral battle. It is important that fiscal policy and all issues around competitiveness are managed as prudently as possible to ensure that the economy is as resilient as possible in the event of the next external shock”.
For the next government, it will be a challenge to address all of the issues that are of concern to the populace, Mr Power summarised.