Boom is back – but don’t expect tax cuts

As GDP soars, Donohoe warns against overheating

IRELAND’S economy is booming and was the fastest growing in Europe for the fourth year in a row, new official figures reveal – but don’t expect big wage hikes or tax cuts any time soon.

The key indicator, GDP, grew by 7.8%. However, according to another metric, modified domestic demand – which removes the distorting effects of foreign multinational companies – the economy grew by just 3.9%.

But while the figures were welcomed by the Finance Minister as ‘very strong’, he played down speculation of widespread tax cuts any time soon.

Budgetary policy must not contribute to ‘overheating’, Paschal Donohoe said. ‘Prudent management of the public Recovery: Paschal Donohoe finance sand competitiveness oriented policies helped create the recovery and this approach will help sustain the recovery in the years to come,’ he said.

Mr Donohoe continued: ‘This confirms that Ireland was the fastest-growing economy in the EU last year. Importantly, the growth in the economy is broadbased with positive underlying contributions from both the domestic and external sectors.

‘It is clear that the economy continues to perform strongly. The strength of the domestic economy, for example, is reflected in robust tax receipts as well as full-time employment growth of almost 6% last year.’

And in spite of strong economic growth, a lid is being kept on inflation, which is at 0.5%. One factor is the fall in sterling’s value, due to Brexit, making imports from the UK cheaper.

The official figures, released by the Central Statistics Office yesterday, are well above the forecast of 5% GDP growth last year. CSO assistant director general Jennifer Banim said: ‘Apart from a small contraction in the financial and insurance sector, all other sectors of the economy experienced growth in 2017.’

However, the amount of goods and services bought by people rose by just 1.9%. Personal consumption of goods and services is regarded as an important measure of domestic economic activity, because it makes up almost a third of the economy.

But despite the relatively positive figures, KBC Bank’s chief economist Austin Hughes warned there will no tax cuts or large wage hikes any time soon.

‘It’s understandable that some people feel the boom is back, and others feel the recovery has yet to have any impact on them,’ Mr Hughes said. ‘There’s a boom in exports but a very sluggish consumer spend. By and large things are getting better, but wages aren’t growing fast and consumers are still cautious.’

‘There’s still a nervousness about what the future holds, so that is weighing on consumer spending. Things should get better and there is probably more scope for tax cuts, but there will be more pressure not to cut taxes because of the fiscal rules. So there will be a conflict at a political level about what should happen next.’