Ire­land may need to cool econ­omy from 2019: CB

Kuwait Times - - BUSINESS -

Ire­land may need to cool parts of its econ­omy in a cou­ple of year, po­ten­tially by rais­ing taxes, if ramped up pub­lic in­vest­ment co­in­cides with full em­ploy­ment, its cen­tral bank chief was quoted as say­ing yes­ter­day. The econ­omy has grown faster than any other in Europe for the last three years and em­ploy­ment is show­ing no sign of slow­ing down, with a cur­rent job­less rate of 6.3 per­cent down from over 15 per­cent five years ago.

“We are not over­heat­ing now and we may not over­heat be­cause of down­side risks,” Gov­er­nor Philip Lane told Ire­land’s edition of The Times news­pa­per in an in­ter­view, a tran­script of which was pub­lished on the cen­tral bank’s web­site. “The big chal­lenge for the govern­ment is that from 2019-2021 in the sce­nario where we do hit full em­ploy­ment in late 2018 or early 2019... the na­ture of the econ­omy to­tally changes and every­one rec­og­nizes that this has to be han­dled.”

Full em­ploy­ment means that just about every­one who wants a job has one, a sit­u­a­tion which leads to work­force short­ages and wage in­fla­tion. Dublin also plans to stim­u­late growth by nearly dou­bling cap­i­tal spend­ing over the next five years, tack­ling bot­tle­necks built up af­ter in­vest­ment ground to a near-halt dur­ing the fi­nan­cial cri­sis and which re­mains among the low­est in the Euro­pean Union.

Lane said that while there was some slack in the econ­omy with wage growth re­main­ing rel­a­tively mod­est, pay pres­sure built up quite quickly when Ire­land last reached full em­ploy­ment in the late 1990s be­fore the crash of the “Celtic Tiger” econ­omy.

“The process of adding through a surge in pub­lic in­vest­ment, how does that work in full em­ploy­ment? Other parts of the econ­omy may need to cool down and this is where the govern­ment’s over­all fis­cal strat­egy may come into play,” Lane said.

“So, rais­ing taxes... Not say­ing we’re go­ing to raise taxes for­ever. But rais­ing taxes to make room for a surge in pub­lic in­vest­ment or to make room for the fact the econ­omy is op­er­at­ing above po­ten­tial... For small economies the type of bud­get sur­plus needed could be sig­nif­i­cant.”

Ire­land’s Fi­nance Min­is­ter Paschal Dono­hoe said last week that over­heat­ing was a risk that could de­velop and that the govern­ment needed to be ready to act. Ire­land also faces an eco­nomic un­known re­lat­ing to next door Bri­tain’s leav­ing the EU, po­ten­tially cut­ting its land route to main­land Europe for ex­ports and also cre­at­ing a dif­fer­ent trade re­la­tion­ship with its main UK mar­ket. — Reuters

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