State will be €20bn richer by end of year, says Ibec

Ibec says the Republic will be €20 billion richer by the end of this year. The employers' group is to publish a Quarterly Economic Outlook today predicting growth will reach 5.9 per cent as a nationwide recovery takes hold.

“Significantly, the economy is set to expand in value terms by an unprecedented €20 billion, 11 per cent, during 2015, leading to a rapid improvement in Ireland’s debt and deficit positions,” Ibec says.

Its report says the Government is likely to collect €2 billion more in taxes this year than it forecast 12 months ago.

Spending increases

Ibec’s forecasts come a day before the Government publishes a budget expected to include €1.5 billion worth of tax cuts and spending increases.

Ibec’s chief economist, Fergal O’Brien, says strengthening demand at home, falling oil prices and the weak euro are driving growth. “The economy is performing marginally ahead of our quarter one forecast of 5.4 per cent due to a stronger environment in key trading partners,” he says.

Employment will fall below the 9 per cent mark by the end of 2015 and more than two million people in the Republic will have jobs in early 2016.

Of the 57,100 net new jobs created in the Republic in the second quarter of the year, 41,700 were outside Dublin, the report states. The capital accounts for a third of all employment in the State and has been getting roughly that share of new jobs, according to the report.

However, it acknowledges that during the recession, Dublin lost 7.6 per cent of its jobs, compared with 10.6 per cent in the rest of the Republic.

Deficit

The strong growth means the deficit will fall to €3.5 billion this year. That’s below the €4.6 billion target set in Budget 2015 and, at 1.7 per cent of gross domestic product, will be well within the 2.9 per cent limit set by the EU. At the same time, the ratio of State debt could fall to 99 per cent of GDP by the end of this year.

Ibec says there is room for further expansion, with consumer spending and investment below prerecession peak levels. It warns shortages in housing and skills, and gaps in infrastructure, pose the most immediate risk to continued growth. The strong growth removes the need for tomorrow’s budget to stimulate demand, it says, arguing instead for a cut to the top rate of tax, reform of capital gains tax, more equal treatment of the self-employed and decisive steps to boost housing supply.