The latest figures for economic growth show an extraordinary rebound for the Irish economy, with GDP in the first quarter up 6.5 per cent on the same period last year and the estimate for 2014 growth revised to over 5 per cent. There are always peculiarities in Irish national accounts data and the impact of multinationals may be exaggerating the underlying growth rate, but there is no doubt that the latest data is encouraging and shows a growth performance which is way above the EU average.
There is finally clear evidence that the recovery, which started in the export sector, is now broadly based. Consumer spending is firmly on the rise and the recovery in investment continues apace. Both, it must be remembered, are recovering from a low base following the impact of the crisis, but the growth evident in the domestic economy suggests that the benefits of growth are starting to be felt relatively widely.
There is still a long way to go, of course. Part of this is due to the simple fact that the economy fell very far, very fast during the economic collapse. Living standards were hit hard and will take a long time to recover. Many households and businesses – and the State itself – are burdened with high debt levels. And the painful cuts to public spending have left a legacy of damage which will take years to repair.
The figures are good news for the Government and provide significant underpinning to the exchequer arithmetic. The fact that growth was faster than expected last year will benefit the debt and deficit figures and make it easier to stay within EU budget rules. There appears little doubt now that Ministers Michael Noonan and Brendan Howlin will have €1.5 billion to dispense in tax cuts and spending increases come Budget day in October.
Whether they should take this road is another question. As the Central Bank has pointed out, even before these latest figures were published, the economy is already growing strongly and does not need further stimulus. The counterargument is that key areas of spending do need to be rebuilt – particularly to meet areas of urgent social need – and there is a case to ease the tax burden imposed in haste during the bust, albeit carefully. Public investment levels also need to be rebuilt. All these worthwhile goals cannot, however, be achieved at once.
Where the balance should lie will become clearer as budget day approaches. With an election in sight, some largesse may be inevitable. But the warnings from the Central Bank and elsewhere should not be dismissed. There is no guarantee that economic growth will continue at anything like this rate. We have a unique opportunity to remove a lot of risk from our economic future by cutting the deficit and reducing our debt burden. It is an opportunity which should be taken.