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Department of Finance growth forecasts not credible - Irish economy in recession
The announcement by the Central Statistics Office (CSO) that Ireland is in recession confirms Social Justice Ireland's claims in its recently published Policy Briefing on Budget Choices 2014 that the growth forecasts most recently set out by the Department of Finance are not credible.
The overall effect of Budget 2014’s proposed €3.1 billion adjustment to the Irish economy will be approximately €3.5 billion in reduced economic activity in Ireland in 2014. The size of this effect is driven by both the direct reduction in government and consumer spending from the Budget’s decisions and the indirect effect on the economy of the knock-on implications of these decisions (the multiplier effect).
Put simply, a reduction in government spending means there is less money circulating in the economy and less money passing from company to company and consumer to consumer - i.e. there will be less economic activity.
Taking this multiplier effect into account means that in 2014 for the Irish economy to stand still (achieve 0% GDP growth) it must replace through new economic activity (growth) the total effect of the Budget’s adjustments which will be approximately €3.5 billion or 2% of GDP.
Furthermore, for the economy to achieve the growth targets most recently set out by the Department of Finance (2.4% GDP growth in 2014) the economy must replace the effect of Budget 2014 and generate a further €4 billion in additional economic activity in 2014. Overall, this implies that Ireland must experience an underlying growth rate of 4.4% in 2014 - similar to the growth levels experiences in boom times.
This does not seem credible and we believe it unlikely these Budget growth targets will be met.
This is one reason we propose a major new investment programme (p.18). Without investment there will be no jobs. Without jobs there will be no recovery.
We need credible economic forecasts and viable policy initiatives to move out of the present crisis.