Economy to grow by 5.4% this year
According to Ibec, strong growth can be maintained if the government commits to reducing the punitive marginal tax rate for all workers and invests in capital projects
Print13 April 2015
The economy is set to grow by 5.4% this year, outperforming the rest of Europe.
In its new Q1 Economic Outlook, Ibec said a combination of favourable exchange rates, quantitative easing and lower oil prices will result in strong growth this year and next, with unemployment falling below 9% this year. Ibec said that despite the stronger than expected recovery, government still has limited room for fiscal manoeuvre. It should prioritise cuts to the marginal tax rate for all workers and ambitious investment in capital projects, education and innovation.
On pay, Ibec head of Policy and chief economist Fergal O’Brien said: “Economic growth will in time translate into pay increases across the economy, but different sectors and companies are recovering at different rates. Two-thirds of domestic services companies and half of traditional manufacturing companies are unable to afford pay increases this year. Public sector pay cuts are likely to be reviewed over the coming years, but productivity improvements must be maintained and pay levels should not be allowed to drift way of line with competitor economies again. Public sector pension reform is urgently required and it must be part of any review of public sector remuneration.
On exchange rates Mr O’Brien continued: “Quantitative easing has led to a dramatic fall in the value of the euro. While some input costs will increase, the weak euro is a major bonus for exporters. Ireland will benefit more than any other eurozone country because of the high level of trade with the UK and US, but the increased cost of some imports will offset a portion of the benefits. These higher import costs are also likely to feed through to consumer prices over the coming months.”
On the government’s upcoming Spring Statement, Mr O’Brien said: “Strong growth can be maintained, but only if we manage the recovery sensibly. The government should commit to reducing the punitive marginal tax rate for all workers, actively encourage entrepreneurship and invest much more in the future of the country. The policy of continuing to tax high skilled workers at a penal 52% rate does not make economic sense and should be abandoned. These policy changes can be delivered while also reducing the deficit and debt levels, and prioritising balanced recovery across different sectors and regions.”
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