Central Bank Warns of Large Government Budget
- The Central Bank of Ireland has revised its economic forecasts, projecting stronger growth for 2024 but anticipating a moderating pace in the coming years.
- The Central Bank warned that a "sharp increase" in government expenditure will negatively impact public finances.
- Looking ahead, the bank anticipates that state revenue will "moderate" over the next few years, leading to a further deterioration of the underlying deficit.
Central Bank of Ireland Forecast: Increased Spending, Revised Growth, and Tariff Impact
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executive Summary
The Central Bank of Ireland has revised its economic forecasts, projecting stronger growth for 2024 but anticipating a moderating pace in the coming years. This revision comes amidst concerns about increased government expenditure impacting public finances and the ongoing effects of US tariffs, despite those effects being less severe than initially feared. the bank also highlighted the need for broadening the tax base to support increased spending and maintain public services.
Public Finances and Government Expenditure
The Central Bank warned that a “sharp increase” in government expenditure will negatively impact public finances. Expenditure by government departments has already shown “strong growth” this year, prompting an increase in the expenditure ceiling.Consequently, the underlying deficit is projected to reach 3.3% of national income in 2024 when excluding one-off factors.
Looking ahead, the bank anticipates that state revenue will “moderate” over the next few years, leading to a further deterioration of the underlying deficit. To address this, the Central Bank emphasized the necessity of broadening the tax base - generating revenue from more sources – to fund the National Growth Plan and sustain current levels of public services.
Economic Growth Forecasts
Despite concerns about public finances and tariffs, the Central Bank has upwardly revised its economic growth forecast for 2024 to 2.9%, an increase of almost one percentage point from its previous prediction. However, growth is expected to slow to 2.2% in 2025 and 2.4% in 2026.
Impact of US Tariffs
The Central Bank acknowledged that US tariffs continue to pose a risk to the Irish economy, but the impact is now expected to be less damaging than previously anticipated. Robert Kelly, Director of Economics and Statistics, stated that the tariff rates covering EU-US trade are “lower than had been expected earlier in the year.”
Research from the Central Bank indicates that national income will likely be approximately 1% lower over the next five to ten years due to the effects of these tariffs. This suggests a long-term, albeit reduced, negative consequence of the trade dispute.
Housing Market Outlook
The Central Bank forecasts that 32,500 homes will be built in 2024. Though, it has revised downwards its housing supply projections for 2026 and 2027 to 36,000 and 40,000 homes respectively, a reduction of 1,500 homes for each of those years.This downward revision follows weaker-than-expected data on planning permissions released by the Central Statistics Office.
Key Figures and Dates
- 2024 Economic Growth forecast: 2.9% (revised up from approximately 1.9%)
- 2025 Economic Growth Forecast: 2.2%
- 2026 Economic Growth Forecast: 2.4%
- Underlying Deficit (2024): 3.3% of national income
- National Income Impact (US Tariffs): Approximately 1% lower over the next 5-10 years
- Housing Completions (2024): 32,500
- Housing Completions (2026): 36,000 (revised down from 37,500)
- Housing Completions (20