Jan O'Sullivan
Question:50 Ms O'Sullivan asked the Minister for Finance his Department's forecast of the level of economic growth for the current year; and if he will make a statement on the matter. [19046/01]
Written Answers. - Economic Growth.
The Department last published an economic growth forecast at budget time in December 2000. At that time economic growth was forecast to increase by 8.8% in GDP terms and by 7.4% in GNP terms. Since the last budget there have been developments which are likely to negatively impact on the growth rate in 2001. The slowdown in the US economy and its repercussions for other world markets can be expected to have some effect on Irish exports and investment. The restrictions which were imposed to successfully contain the outbreak of foot and mouth disease can also be expected to have had some effect on economic growth, especially in the tourism and farming sectors.
Other commentators, having taken these factors into account, have revised their forecasts for economic growth downwards for 2001. My Department, as is the normal practice, will issue its revised forecasts with the publication of its Economic Review and Outlook later in the summer.
Question No. 51 answered with Question No. 37.
Michael Noonan
Question:52 Mr. Noonan asked the Minister for Finance if he has received the OECD economic outlook report, published on 2 May 2001; and if he will make a statement on the matter. [15560/01]
I have a copy of the OECD Economic Outlook No. 69 which gives the OECD's view of all the member countries. The outlook points out that growth in the OECD area is expected to be 2% this year, half the rate achieved last year although this is expected to recover somewhat to between 2.5% and 3% next year. Slower growth across the OECD area, combined with an expected fall in the price of oil, should help keep inflation low. The recovery in growth which is projected for next year is based on factors such as the interest rate reductions which have already taken place and lower oil prices. The main risk to this outlook which the OECD identifies is a further substantial decline in the value of technology stocks which would adversely affect aggregate demand.
The section on the Irish economy included in the outlook notes that real GDP grew by almost 11% last year. Despite slower export growth due to a fall in demand for high technology products, GDP is projected to grow by 7.75% this year and next. Inflation is projected to ease this year. However, the OECD expects that consumer prices will remain above the euro area average due to services prices growing rapidly in line with rising wages in a tight labour market.
The OECD notes that the last budget gave priority to preserving social partnership but goes on to suggest that partnership needs to evolve towards setting general principles guiding pay determination rather than pre-committing fiscal policy. The report notes the Government's efforts to address strains in infrastructure by means of the national development plan. In addition, it notes that a number of steps have been taken to improve the flexibility of training and human capital formation in order to attract and maintain foreign direct investment which can support higher wages than in the past. At the same time, it notes that regulatory reform is being strengthened and competition fostered.
The OECD considers that the risks are more balanced than in the past. Private sector balance sheets appear to be sound but if a marked correction in house prices were to occur, that could lead to weaker consumption and a more cautious lending attitude. A more general risk is that the economy will not slow to around potential, leading to a surge in wage demands and a greater likelihood of a sharper, more disruptive correction at some stage in the future.
Overall, the OECD's comments on the Irish economy are positive. Although some risks remain, they expect strong growth to continue. To ensure sustainable growth they advise, and I agree, that policy needs to continue to focus on improving both human capital and the provision of infrastructure.