New fiscal and competitiveness discipline needed
Ibec, the group that represents Irish business, today published its new Quarterly Economic Outlook, which forecasts an increase in GDP of 6.5% in 2021 on the back of continuing export momentum. This growth, however, is also reflective of a very unstable period with COVID driven base effects, Brexit and other international dynamics all leading to volatility in the figures. With the National Economic Dialogue beginning today, Ibec called for a renewed focus on greater fiscal and competitiveness discipline to ensure resources continue to be available and used strategically to fix priority economic challenges such as; infrastructure, housing, population ageing, and climate change.
Commenting on the report, Ibec Chief Economist, Gerard Brady, said: “The economy is set to emerge strongly from the COVID crisis. The first half of 2021 has seen the export engine of Ireland’s economy continuing to fire and a level of normality is now returning to most domestic sectors. Despite the comparatively poor performance of domestic sectors in the first quarter of the year, there are signs of light on the horizon, with credit and debit card data and strong VAT returns for March and April indicating the potential for a rapid recovery in consumption. This, in conjunction with positive improvements in employment as sectors reopen, shows an economy well placed to see a rapid recovery in activity as the vaccine is fully rolled out.”
“From a business perspective, the enthusiasm from reopening has been somewhat dampened by growing fears of competitiveness pressures driven by both rapid international price increases on key goods and freight and by domestic policy. Whilst strong activity on reopening will be welcomed by business, these additional costs may mean significant margin compression and profitability challenges for some. The global economy remains a long way from ‘business as usual’, with cost pressures and interruptions in supply-chains to remain for some time yet.
“As we emerge from COVID, our most significant challenge will be to ensure future growth is sustained and sustainable. Ireland faces some unique challenges in the post-COVID era. We have obvious long-standing infrastructural deficits, significant Government policy commitments in areas like health, pensions and the labour market, and hugely ambitious climate targets to meet. We are also facing threats to our business model from global corporate tax change. All of these will have challenging implications for economic growth, business competitiveness and tax revenues in the months and years ahead.
“At the same time, COVID has left its mark on the State’s balance sheet. This needn’t mean a return to austerity, but it will constrain options for new, unfunded, day-to-day spending or tax cuts in the future. The ability of the State to continue or repeat its fiscal heroics of the past 18-months is not infinite. It will mean we must be more strategic in our decisions and target resources at the generational challenges we face in areas like infrastructure, climate change, ageing, and competitiveness in an era of global corporate tax change. In addition, with business already facing a decade of significant policy-driven commitments, this must be reflected by the State ensuring that unnecessary additions to the already high cost of doing business in Ireland are minimised where possible and matched by offsetting policy supports.”Ibec Quarterly Economic Outlook Q2 2021 pdf | 1398.8 kb