ESRI forecasts robust economic recovery
The Economic and Social Research Institute (ESRI) has become the latest body to forecast a robust recovery in the economy.
In its Quarterly Economic Commentary, published today, the ESRI predicts the domestic economy will grow by just over 7% this year while GDP will grow by 12.6%.
The report says this will ease the pressure on the public finances.
The ESRI forecast earlier this year that the economy would rebound in GDP terms by double digits this year. That’s now pencilled in and the momentum is expected to carry through to deliver 7% growth next year.
The ESRI has factored in a reduction in the forecast Budget deficit for this year from around €20 billion to just under €15 billion, lifting some of the pressure on the public finances.
It believes considerable investment will continue to be needed in housing, climate action and healthcare into the medium term.
This may require a combination of new taxes and borrowing.
But it warns the Government will need to be disciplined when it comes to current spending.
Otherwise, with the economy already growing at pace, there is a risk that additional spending could push the economy into overheating.
Kieran McQuinn, Research Professor at the Economic and Social Research Institute, has said there has been “remarkable resilience” in response to Covid 19.
Speaking on Morning Ireland, Mr McQuinn said the think thank is expecting “very strong growth” into next year.
“That reflects both the bounce back but also the underlying dynamic within the economy over the last number of years,” he said.
He said the export side of the economy is continuing to perform strongly and the domestic source of growth is also faring well as more sectors of the economy reopen.
Addressing the labour market that has been “hugely affected” by the pandemic, he said there is resilience which was evident when public health measures were eased last year and employment growth “picked up”.
“Our expectation is that over the coming year unemployment will fall probably back to somewhere in the region of 7% on average next year, which is still somewhat above what it was prior to the before pandemic,” he said.
“But it is clear as we move through 2022 that unemployment figure will fall back down to the position it was in 2019,” he added.
He said there is a key challenge in terms of fiscal policy ahead of the Budget announcement next week.
The ESRI has called for greater investment in terms of housing and climate change and Slaintecare.
He said the Government seems to be “setting out their stall” in terms of capital investment and that is “right and appropriate.”
But he warned that when the economy is growing it can be in danger of overheating and as a result he thinks fiscal policy needs to remain focused on discipline and restraint.
Regarding a decision to be be made by the Government on the global corporate tax rate, he said they have to be prudent and careful on how it would impact the economy.
He said the ESRI is “reasonably confident” that this change would not have a substantial impact in terms of growth or employment and also on corporation tax receipts.
There is a number of reasons for that, he explained.
“Research would suggest that as a country evolves and matures corporation tax rate is always important but other factors become important also such as flexibility of the workforce and membership of EU,” he said.
He also said this change that is coming from abroad is an external change.
“It doesn’t represent a difference in terms of Ireland’s attitude to FDI. That is important because it is not that Irish authorities are sending a signal out to the international community that they are changing tack,” he stated.
“This is clearly Irish authorities responding to changes coming from abroad,” he added.