Irish Government warned against stimulating economy through public spending

Irish government should avoid growth stimulation through public spending

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Bank of Ireland, College Green in Dublin

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The Irish government should avoid any attempts to stimulate growth in the Irish economy through public spending, according to the Economic and Social Research Institute (ESRI).

The institute made its comments in its latest quarterly economic commentary.

The ESRI argues that any policy measures to promote growth should be coordinated at EU level and not undertaken by individual countries on their own.

While a stimulus package for the euro zone could greatly benefit Ireland, it warns not to try the policy at home.

History and experience, it says, show that measures to try to stimulate domestic demand for the benefit of the Irish economy have little effect.

It says that the domestic market is too small and it cautions that using any proceeds from possible state asset sales to this end would not be an efficient use of funds.

The institute said that in order to grow, the Irish economy needs competitiveness gains and export growth.

At a euro zone level, however, it calls for coordinated policies to recapitalize Europe's banks, reduce the burden of paying off debt for crisis-hit countries such as Ireland and move the economy on to a path of self-sustaining growth.

In the absence of that, the think-tank predicts zero growth in the euro zone this year and little next year. This has resulted in it paring back its forecasts for Irish growth too. The ESRI now expects economic output, or GDP growth, of just 0.6% this year compared to its previous forecast of 0.9% and 2.2% in 2013.

The institute also said that employment will continue to fall and it predicts an annual average unemployment rate of 14.9% for 2012. It says that unemployment will continue to remain high next year, with a rate of 14.7% predicted.

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