Bernard Durkan
Question:69. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which issues with the potential to overheat the economy have been identified; and if he will make a statement on the matter. [10210/19]
View answerThursday, 28 February 2019
Questions (69)
Written answers
On the back of the strong growth recorded over the last number of years, our economy has moved from a stage of economic recovery to a more mature stage of development. The recovery in the economy in part reflects improvements in Ireland’s competitiveness over the last number of years. As measured by the Central Bank’s Real Harmonised Competitiveness Indicator, Ireland’s competitiveness has improved by over 21 per cent from the low point in 2008.
Despite the rapid rate of recovery, the main signs of overheating – for instance pay developments, credit growth, and inflation - do not yet suggest that overheating pressures have emerged. While price pressures have been seen in the housing market, these are more a function of structural imbalances between supply and demand, which we are actively seeking to alleviate, rather than evidence of over-heating.
The strong growth in employment over the last number of years has seen the unemployment rate fall from a peak of 16 per cent in early 2012 to 5.7 per cent in January 2019. Despite the improvements in the labour market, the economy is not yet operating at full capacity, with the unemployment rate still above the level considered to represent full employment in Ireland. Although, average hourly earnings grew at just over 3 per cent in 2018, this follows nearly a decade of low or negative earnings growth.
Importantly the recovery in the economy has not yet given rise to inflationary pressure. For the sixth consecutive year inflation, as measured by the Harmonized Index of Consumer Prices, has been below 1 per cent. This trend has continued into 2019, with inflation of just 0.8 per cent recorded in January 2019.
As in any healthy economy, the pickup in credit growth has taken hold, albeit at a modest pace. However, since the financial crisis, a number of additional safeguards have been put in place to prevent the unsustainable build-up of credit, most notably the introduction of the macro-prudential regulations by the Central Bank.
Over the medium term, with the domestic economy expected to drive growth, it is important that we remain cognisant of the potential upward pressure this will place on both prices and wages, which could give rise to a loss of competitiveness. Indeed, in order to prevent overheating pressures emerging we must focus on maintaining competitiveness-oriented policies, whilst avoiding pro-cyclical policy measures. To this end, the Government will continue to implement budgetary policies designed to ensure economic stability and fiscal sustainability. This prudent approach to our public finances will help to mitigate against any future downturn in economy activity.