EDITORIAL: Avoiding economic mistakes of the past

TAKING care not to overheat the economy is vital this year if we want to avoid the mistakes of the past. This time 10 years ago, the property bubble created during the Celtic Tiger era was in the process of bursting, leading to several years of a downturn that cost the people of Ireland dearly – and which they are still paying for and will be for some time to come yet.

GDP growth for 2017 is expected to hit 5% when the final figures for the year are in and growth of 4.2% is predicted for this year, mainly driven by the domestic economy, which was hardest hit by the downturn and remained in the doldrums for several years before it started to recover as people began to spend more again when the labour market expanded as unemployment rates dropped from over 15% down to 6% during the past seven years or so and are expected to fall further again in 2018. However, the begrudging European Commission maintains that the activities of multinational enterprises in Ireland continue to distort headline figures and complicate macroeconomic forecasts; its growth prediction for both the euro area and the EU being only 2.1% for 2018.

The Irish government may have a bigger surplus than predicted for this year through a combination of improved tax collection and underspending, but the Economic and Social Research Institute maintains that this should be used by the government to prioritise reducing public and private debt before the cost of borrowing rises, notwithstanding the crises in social housing and public healthcare provision. 

In a recent Quarterly Economic Commentary, the ESRI’s Prof Kieran McQuinn also noted that ‘key risks to the outlook in the near to medium term include the slowdown increasingly apparent in the UK economy and the potential for overheating in the domestic economy over the coming year.’