The Economy: Gloom at the end of the tunnel?

Roundup of Economic Forecasts

The latest economic forecasts are shown in the attached table. Pride of place goes to the ESRI which has dramatically upscaled its forecast for this year and next from what the predicted three month ago. Thanks to buoyant exports of IT and pharmaceuticals, plus the lifting of restrictions, Irish GDP will jump 11% in 2021 and continue growing rapidly in 2022. 

Of course, GDP is distorted by multinational enterprises so Modified Domestic Demand (MDD) in the bottom of the table, which strips out much of the effects of the MNEs, is a better measure of domestic welfare. Unfortunately the ESRI doesn’t make an MDD forecast. The ones presented here are rather cautious. Even so, and allowing for some upward adjustment in these, MDD should show strong growth in this year and next and more than recover the losses in 2020 and earlier 2021.

The Fiscal Advisory Council Casts a Shadow

So much for the short term. Much more cautious is the medium term view of the Fiscal Advisory Council whose job is to give an independent view of the government’s finances. The FAC is not paid to be an optimist and its May report, while endorsing recovery in 2021-2022, warns of possible trouble ahead.

Specifically the government’s medium term spending plans don’t seem to the FAC (there is some lack of clarity) to take full account of all of the following:

Company Tax: The possible loss of €2 billion in CT as a result of adoption of the 15% minimum CT  rate by the industrialised countries

Ageing: The cost of an ageing population in terms of increased outlays on health care and pensions. This will be about €7 billion extra per annum by 2030.

Environment: Substantial costs will be incurred – and soon – if the government is to meet the 2030 and 2050 targets in its Climate Action Plan.

Slaintecare: The transition could cost €3 billion and it is not clear how much (if any) of this is included in the Government’s medium term forecasts.

Tax Indexation: The Programme for Government includes a commitment to index tax bands. If implemented, this would reduce the government’s tax projections by €1-€2 billion by 2025. 

To which one can add

Housing: Pressure to meet housing demand is constantly rising and it has only recently become clear that unit costs have escalated enormously. The ESRI suggests the government should thrown another €2 billion a year at this problem.

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