Dr Alfredo Manzullo

Prospects

_{The external scenario we are using is based on the January 2008 National}

Institute Economic Review89 _{supplemented by the IMF’s January 2008 forecast.} It sees the US being technically in recession this year, with continuing low growth in 2009. However, it is expected to recover quite strongly in 2010. The EU economy follows a more muted path with continuing substantial growth this year and some slowdown thereafter. After a bounce back in 2010, the major world economies are assumed to revert to their long-term growth path out to 2015 and beyond.90

Domestic fiscal policy is assumed to be broadly neutral and, as a result, the substantial increase in the general government deficit in 2007/2008 will

89_{Produced by the National Institute for Economic and Social Research (NIESR) in}

London. It is NIESR’s NiGEM model that is used in this Review to examine alternative scenarios on the external environment.

90_{Because of the uncertainty inherent in any such forecast an alternative scenario is}

be corrected gradually over the forecast period. The National Development Plan is assumed to continue as planned. Current government expenditure as a share of GNP is assumed to remain broadly unchanged out to 2015. This will see some improvement in public services in line with projected economic growth. As a first step to reducing Ireland’s greenhouse gas emissions, it is assumed that a carbon tax is implemented from 2010 onwards and that it is set at the EU Emissions Trading Scheme (ETS) price for carbon permits. It is also assumed that after 2012 all tradable emissions permits are auctioned, with the revenue accruing to the government and being used to moderate taxes on labour.

The main area of demographic uncertainty is migration. Because migration is driven by changing economic incentives, its level in our forecast is determined by the economic environment in Ireland relative to that elsewhere in the EU. Given our current forecasts for Ireland and the EU, we envisage continuing net immigration into Ireland, but at a much lower level than that experienced in recent years.

Based on these assumptions, we see the Irish economy rebounding in 2010, with more rapid growth making up for “lost time”. Thereafter, the rate of growth in GNP should be around 3.5 per cent a year. The growth in Gross National Disposable Income (GNDI) will be slightly slower. In the 2005-2010 period, it is expected to grow by 1.5 percentage points less than GNP due to losses in the terms of trade. Between 2010 and 2015, the rate of growth of GNDI will be much closer to that of GNP and, as discussed in Chapter 2, the shift towards services exports should see GNDI growing more rapidly than GNP in the second half of the next decade. Employment will grow at a little over 1 per cent a year, much slower than in the recent past. This reflects somewhat lower trend growth and a somewhat higher productivity increase. As discussed elsewhere in this Review, the higher productivity is partly due to the reduction in importance of the low productivity building and construction sector.

Unemployment (as defined by the International Labour Organisation) is expected to peak at just under 7 per cent of the labour force in 2011 and to fall back gradually in subsequent years. The economy should be back to close to full employment by the end of the forecast period. The pattern of employment growth will be different from that in the past: industrial employment will gradually fall while the major growth in employment will be in business and financial services.

The consumption deflator is expected to grow at between 2.5 per cent and 3.0 per cent a year. However, the recent fall in the sterling exchange rate could imply some moderation in this rate of inflation in the next few years. The rate of growth in non-agricultural wage rates will be rather similar to that of today – around 4.3 per cent a year. This will not be enough to restore the competitiveness lost in recent years; hence the slow growth forecast for manufacturing.

The balance of payments deficit is expected to peak by 2010 at over 5 per cent of GNP. Thereafter, it is expected to fall as domestic demand grows more slowly than trade. It is expected that the main growth in trade will come from rapidly growing services exports.

144 MEDIUM-TERM REVIEW 2008-2015

The housing sector is expected to be back on an even keel in 2010. Thereafter, housing completions are expected to lie in the range 45,000- 50,000 a year. This would be consistent with unchanging real house prices between 2010 and 2015.

T

he changing behaviour of the economy, together with the evolving needs of a much richer and more mobile society, will pose new issues for policy. We explore some of these here, recognising that there are many others, which lie beyond the scope of this Review. Here we consider first fiscal policy, whose primary focus is to moderate the inherently cyclical nature of the economy. In the absence of monetary policy controls, fiscal policy is of increasing importance for EMU countries. We then look at structural policies, whose main focus is to enhance long-term economic growth and productivity, primarily by fostering structural change. Next we look at environmental policy, which is moving up the overall national agenda rapidly, as concerns about climate change are growing. Finally, we look briefly at the overall implications for policy of Ireland’s favourable demographic situation over the period to 2025. This provides a window of opportunity to address the long-term challenges of an ageing society, which will inevitably affect Ireland in the second quarter of the current century.

7.4

Implications

In document Anales tomo XXXI 1976-1977 (página 127-133)