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Govt still needs E500m Budget adjustment

Friday, August 22 11:46:29

While some analysts predict the end to austerity Budgets, Investec today said that half a billion will still be needed in cuts and new taxes to meet fiscal targets.

Budget 15 this October will represent the final act in a series of measures which began in July 2008 to restore the public finances to good order, said Philip O'Sullivan, Investec Ireland's economist.

"Our view is that an incremental E500m of fiscal consolidation measures are required in order to meet next year's target of a deficit of less than 3pc of GDP while maintaining a buffer to guard against any adverse shocks," he said.

His latest Irish Economy Monitor, said that since the start of the year the Irish economy has built on the progress made during 2013. The domestic economy has been a particular driver, although net exports remain an integral part of the overall growth story. The broad nature of the recovery is reflected in the fact that the three Irish PMIs - Services, Manufacturing and Construction - have been simultaneously above 50 since September 2013, it said.

"We are especially encouraged by the positive trends in the labour market. The economy has added jobs for six successive quarters, while the number of people signing on the Live Register has declined in each of the past 25 months. The standardised unemployment rate (11.5pc) is back in line with the Eurozone average for the first time since October 2008. The employment component of each of the PMIs suggests that these trends have further to run," Mr O'Sullivan said.

The Irish consumer has made a meaningful comeback, he added, with retail sales posting eight successive months of annual gains in both volume and value terms. So-called 'big ticket' items such as cars (the number of new cars licensed in Ireland in the first seven months of the year was +30pc y/y) and furniture are enjoying a bright start to the year, while consumer confidence stands at a seven year high.

In the property market, the recovery in residential prices has spread beyond the capital. In the year to date the CSO's national residential property price index is +5.4pc and within that Dublin is +8.9pc while the rest of the country is +1.9pc. In the non-residential sector, busy secondary market activity has been supported by positive trends in prices and rents, Mr O'Sullivan predicts.

"All in all, Ireland continues to move forward. We see GDP rising for a second successive year in 2014, with further growth envisaged in 2015. However, while most indicators of the health of the economy are pointing in the right direction, we are not oblivious to the tail of issues that remain from the downturn, such as the need for further deleveraging in some areas and the worrisome issue of long-term unemployment (46.6pc of Live Register claimants have been on it for more than one year)."

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