Budget to bring no further austerity beyond €3.5bn already signalled

There will be no extra austerity beyond the €3.5 billion already planned for next month’s budget despite a substantial downgrade in the Government’s growth outlook.

In its Medium-Term Fiscal Statement, released by the Department of Finance yesterday, the Government said “all options” were being considered for the budget, including social welfare cuts, a broadening of PRSI and a reduction in the public sector pay bill.

For 2013, the Department of Finance has downgraded its gross domestic product growth forecast by 0.75 of a percentage point to 1.5 per cent, reflecting both sluggish domestic spending and a worrying international economic backdrop.

The forecasts do not take account of any benefits that might flow from an EU deal on Anglo promissory notes.

The department is notably pessimistic on the unemployment rate, forecasting that it will remain as high as 13 per cent until 2015 at the earliest.

It had previously suggested unemployment would drop to 11.7 per cent by that stage.

The department said that while a modest increase in employment was likely over the next two years, the impact on the unemployment figures would be limited. It expressed concern that the composition of unemployment had changed considerably since 2006, with long-term unemployment accounting for 61 per cent of those out of work now, more than double the 2006 figure.

It also said the budget, in three weeks, would include measures for social expenditure cuts and reductions in the public pay and pensions bill.

Positive Fitch rating

On the upside, ratings agency Fitch last night removed the risk of a further downgrade to Ireland’s creditworthiness, saying the country had made strong progress towards an economic recovery.

The last time Ireland’s creditworthiness was ranked at this level by Fitch was in December 2010 when it was bailed out by the EU and the International Monetary Fund.

Another ratings agency, Moody’s, which has a more pessimistic view, said Ireland faced “a pretty mixed picture” and the Government might require further “official” funding as a precaution when the EU-IMF bailout finished at the end of next year.