Forecasts doubled for economic growth this year
Forecasts for economic growth this year have been revised significantly upwards by the Department of Finance today.
When measured by GDP, the department said the economy is forecast to grow this year by 15.6%.
This is a revision upwards from just over 8.8% in the Summer Economic Statement.
When measured by Modified Domestic Demand, which more accurately reflects the domestic economy, growth is forecast to be 5.25% this year and 6.5% in 2022.
This is around twice as fast as was previously thought.
The forecasts have been endorsed by the Irish Fiscal Advisory Council as part of the preparations for Budget 2022, which is just under two weeks away.
The Department of Finance also said it expects unemployment to be around one percentage point lower for each of the next three years, falling to 7.2% in 2022 and 5.3% in 2024.
Inflation is expected to peak above 4% in the final quarter of the year, before falling back below 2% in the third quarter of 2022, the forecasts showed.
The Government decided in July to narrow its budget deficit more gradually than planned in order to increase capital spending, in particular on housing and climate change.
Minister for Finance Paschal Donohoe said he would not use the better than expected growth to further increase the amount of money available for spending hikes and tax cuts in Budget 2022 on 12 October.
Minister for Public Expenditure Michael McGrath also revealed that he did not expect all of the money allocated to government departments in last year’s Budget to be spent.
Mr McGrath said that at the end of August, there was an underspend of approximately €1.7 billion split between about €1 billion in capital spending and €700m in current spending.
He said some capital projects had been delayed due to Covid earlier this year accounted for some of the shortfall.
Mr McGrath would not predict what the underspend might end up being at the end of the year.
When asked if better than forecast economic performance and higher than planned tax revenues would change the Government’s spending plans in the upcoming Budget, Mr Donohoe said the Government intends to stick within the parameters set down in the Summer Economic Statement.
“We believe the overall size of the Budget is right and to go over it would put at risk progress in reducing our borrowing,” Mr Donohoe said.
“I am acutely aware of the ambition to invest more but have to get it right.”
The Summer Economic Statement outlined an expenditure ceiling of €88.2 billion for next year’s Budget. The Budget day package is projected to be €4.7 billion.