The International Monetary Fund (IMF) has said the Irish economy has “strengthened considerably” on the back of strong tax revenues but the positive outlook is “clouded by considerable external risks”.
A team from the IMF has just concluded its annual review of the economy known as an Article IV consultation.
Its recommendations include saving any surplus in the public finances to help bring inflation down and prepare for future shocks and the pressures of an ageing population and climate change.
The IMF describes the recent Budget as “slightly expansionary” and says a “smaller and better targeted package” would have cost less and still protected the most vulnerable. It recommends phasing out one-off cost of living measure as inflation recedes.
It forecasts the economy, as measured by GNI*, to grow by 2.5% this year and next, while it expects growth measured by GDP to moderate to 1.5% this year before picking up to 2.66% next year.
The IMF has also forecast inflation to average 5.33% this year before slowing to 3.2% next year and reaching 2% by the end of 2025.
But it warns that risks such as Russia’s war in Ukraine and the current crisis in the Middle East could affect forecasts.
It warns that changes to international corporate taxation rules could have “more consequences than currently envisaged”.
The IMF also advises the Government against adding to demand in the economy and says the tight labour market is constraining economic activity and adding to core inflation.
It says more efforts need to be put into making the planning process here more streamlined and regulations need to be modernised.
It supports the broadening of the tax base and the savings funds announced in the Budget. However, it says the Government needs to “anchor” its plans with spending rules that go beyond the current 5% rule.
On climate change, the IMF says Ireland needs to speed up its delivery of key objectives and believes we will probably miss our 2030 targets.