Damien English
Question:48 Mr. English asked the Minister for Finance his estimate of the impact of the war in Iraq on the Irish economy; and the knock-on effect on the Exchequer's receipts and expenditures. [9648/03]
Written Answers - Foreign Conflicts.
As the House knows, Ireland has a very open economy which is more affected than many others by world economic conditions. The success of our economy relies significantly on continued inward investment and on the performance of the export sector in selling goods and services to other countries. My Department therefore keeps developments in the world economy under close and constant review.
One of the most immediate issues for the global economic environment is that of how its prospects have been affected by recent developments in relation to the war in Iraq. The assessment of my Department is that the implications of the war in Iraq for the world economy are closely linked to the impact on the price of oil. A sustained, significant increase in the price of oil, if it were to happen, would tend to reduce disposable spending power and economic growth in our major trading partners. This would be likely to reduce our exports to those countries and could also add to inflation here. However, the House should note that there has as yet been no sustained significant increase in oil prices. The other main channels through which the war in Iraq could affect our economy are through consumer confidence levels, potentially lower foreign direct investment inflows and possible exchange rate developments. Given the uncertainty about possible developments in the Middle East it is not possible to quantify with any accuracy what the overall impact on our economy might be.
Whether the war in Iraq impacts on the public finances will essentially be a matter of how the conflict impacts on economic activity here. In order to be as helpful as I can to the Deputy, I might point to the sensitivity analysis completed for the Irish stability programme update and published on budget day. This analysis calculated that a 1% impact on the GDP growth rate would change the general Government balance by about 0.5% of GDP.