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Fast growth threatens to overheat Irish economy: OECD

Xinhua, June 2, 2016 Adjust font size:

The Organization for Economic Cooperation and Development (OECD) on Wednesday warned of risks of overheating Irish economy.

"Fiscal policy is projected to be somewhat less contractionary than in past years, reflecting higher expenditures planned by the authorities, including a fiscal package of 1.5 billion euros for 2016," the OECD said.

"Nevertheless, most of the improvement will reflect stronger output growth, which raises taxes and reduces certain spending," it said.

But the Paris-based thinktank urged the Irish government to "avoid more fiscal stimulus than currently planned in order to prevent overheating pressures."

In its biannual Economic Outlook, the OECD said the Irish economy is projected to continue its robust expansion in 2016 and 2017.

Both Ireland's exports and business investment, which surged due to temporary impetus by multinational enterprises, will moderate but remain solid, it said.

It also said activity in Ireland's domestic sector will remain firm and employment will grow steadily.

"Wage growth will be strong as the labor market tightens. Household consumption will be solid, supported by labor earnings growth and tax cuts," the OECD said.

"The economy is projected to expand solidly, but with tightening capacity pushing up inflation," it said.

Wage growth may turn out to be much stronger than projected, lifting demand in the short run but fuelling further inflationary pressures and eroding competitiveness, according to the OECD.

"Fiscal policy may prove more expansionary than assumed, as there will be a temptation to spend the extra revenue that very high growth will bring. This would also fuel demand pressures," it said.

The OECD said the potential exit of Britain from the European Union would significantly affect the Irish economy.

It said Irish exports to Britain, accounting for 20 percent of its overall exports, would be particularly sensitive to any raising of trade barriers or a sharp depreciation of sterling.

Ireland's gross domestic product growth was forecast to moderate to 5 percent in 2016 from 7.8 percent in 2015 and to moderate further in 2017 to 3.4 percent, according to the OECD. Endit