Written Answers. - ESRI Review Findings.
Pat Rabbitte
Question:
32
Mr. Rabbitte
asked the
Minister for Finance
if his attention has been drawn to the ESRI Medium Term Review 1991-96; if he will outline his views on the main findings, especially that unemployment is likely to increase up to 1996; and if he will make a statement on the matter.
I welcome the publication of this latest review of the medium term prospects for the Irish economy. It is a useful contribution to the process of planning for the sustainable betterment of our economy for the benefit of the whole of our community.
I assume that the Deputy's main focus is on the review's "central forecasts" for the period to 1996. This, of course, is based on stated assumptions, as is the case with all forecasts, but especially those which look several years ahead. The ESRI assessment emerges at a time of considerable uncertainty about the possible timing, pace and sustainability of the expected recovery in certain major economies, and thus, in particular, about the shorter term external environment within which Ireland must develop. In this context, their assessment of the implications of some alternative assumptions is also to be welcomed.
Turning to the "Central Forecast" itself, the key elements of the medium term prospect 1992-96, as seen by the ESRI, in annual average terms, are: output (GDP) growth averaging some 3½ per cent; a continuing solid balance of payments surplus; inflation, as measured by the consumer price index, below 3 per cent, with the industrial sector maintaining its competitive edge; non-agri-cultural employment growth of some 15,000, partly offset by a further secular decline in agriculture leading to net annual growth of about 10,000; numbers in the labour force rising by about 12,500 annually — in part because of a continuing weak UK labour market — and thus a small annual increase in unemployment over the period.
I agree with the authors' views that "the behaviour of the world economy is the single most important influence on the potential for Irish growth", and that, over the medium term, "the Irish economy should continue to perform somewhat better than the average for the EC". This latter assessment represents a strong endorsement of the current thrust of Government policies.
It is, at the same time, a sobering document. While it projects a rate of growth in employment over the next five years which would be "satisfactory for many countries", and "greater than that attained in the past five years", it nevertheless highlights the key issue for the future: to create conditions which can support a still more rapid expansion of jobs. While one could debate either way some of the assumptions made and thus its conclusions about potential growth and employment developments, a realistic basis for policy-formulation demands a set of assumptions which are as likely to be optimistic as pessimistic.
Against the background of the last decade, I also am in firm agreement with the authors' view that "past experience shows that fiscal expansions can not promote lasting growth in employment". Under such a course, as they describe it, "the problem of the debt could return to dominate the national agenda". That would damage investor confidence, remove all the benefits of policy credibility, and put at risk the substantial growth in output and employment contained in their assessment.
We should look on this assessment as part of the basis for planning the development of the Irish economy to achieve more. It presents us with challenges. It points to the vital importance of incomes moderation to employment expansion. It directs attention to the need for improved efficiency of "the supply side of the economy"— an approach that is already in train, but one to which we can all contribute more, and thus lay the basis for greater competitiveness and still faster growth through this decade than the ESRI team foresee.
