Monday, October 22 10:59:18
Employers group, IBEC has cut its economic growth forecasts for Ireland, citing the slowdown in Europe and weak growth elsewhere in the world.
It said that anaemic economic growth in the rest of Europe and said that heightened consumer worries at home will mean slower growth.
"While the Irish economy is performing relatively well, given the slowing demand in export markets, IBEC now expects GDP growth of 0.8pc in 2012 (previously 1pc) and 1.8pc in 2013 (previously 2.3pc). Strong growth remains elusive," IBEC said.
In the face of tough trading conditions and depressed domestic demand, IBEC warned that some proposals emanating from Government were at odds with its efforts to support job creation, and would damage growth and undermine the recovery. The group said that any move to introduce a statutory sick pay scheme or hike PRSI would cost thousands of jobs and would fly in the face of the Government's stated ambition to make Ireland the best small country in the world in which to do business.
IBEC Chief Economist Fergal O'Brien said: "Companies are putting together budgets and business plans for 2013. If employment costs rise they will be much less likely to take on new staff. Some will be forced to downsize or go out of business. The focus must be on cutting public expenditure and raising revenue in a way that is least damaging to growth. The most damaging thing Government could do in Budget 2013 would be to add to the cost of employment.
"Since 2010, budgetary measures have added E660 million per annum to the labour costs of Irish employers, through employer PRSI changes, the pensions levy, reduction in the redundancy rebate and higher medical insurance costs. This has led to an average increase in labour costs of 1.4pc, which equates to 20,000 less jobs in the economy (research from the OECD shows that an increase in taxes on labour of 1pc reduces an economy's employment rate by about 0.4pc, see below explanatory note). Best practice internationally is to reduce taxes on employment in tough times to get people back to work.
IBEC said the Budget must also focus on supporting activity in the domestic economy. Consumer spending will drop by a further 2pc this year and domestic demand remains fragile. "Austerity alone is not the answer, we need Government to deliver the conditions for economic growth. We need an ambitious growth strategy that supports investment, addresses the weakness in the domestic economy and rebuilds confidence," concluded Mr O'Brien.