Irish Central Bank Raises Growth Forecasts

        By Paul Hannon
        Ireland's central bank Wednesday said it expects the economy to grow at an even more rapid pace this year and next, and urged the government to use higher tax revenues to reduce its very high debts rather than fund tax cuts.
        In its quarterly report, the Central Bank of Ireland said economic output will likely increase by 4.1% this year and 4.2% next, having risen by 4.8% in 2014, when the country recorded the fastest growth in Europe.
        In April, the central bank's economists forecast growth of 3.8% this year and 3.7% next.
        Ireland's economy contracted in the years following the collapse of a construction and house-price boom in 2008, while the government had to borrow heavily to bail out the stricken banks. In 2010, Ireland signed up to a three-year bailout program with the International Monetary Fund and the European Union.
        The country returned to very modest growth in 2013, and took off last year as exports to the U.S. and the U.K. surged.
        The central bank said that better export performance is now being complemented by rising domestic demand as unemployment falls.
        "Further increases in employment, rising real disposable incomes and gradually strengthening consumer confidence are projected to support a pick-up in the growth of consumer spending over the remainder of 2015 and 2016," the central bank said.
        The prospect of a continuation of the strong recovery should aid the coalition government as it prepares for fresh elections that must be held by April of next year. However, recent opinion polls show the center-right Fine Gael party of Prime Minister Enda Kenny has yet to benefit from the recovery, while support for the center-left Labour Party has collapsed since the 2011 election. A quarter of voters expressed support for candidates not aligned with any political party.
        The government has promised a second round of tax cuts in its budget for 2016, a move that the central bank criticized, arguing that the economy needs no further support from fiscal policy. The government's debts are in excess of annual economic output, and among the highest in the eurozone.
        "Looking ahead, the strong growth outlook implies that there is no need for fiscal policy to support economic activity and, importantly, also provides an opportunity to move ahead with fiscal consolidation and debt reduction in favourable circumstances," the central bank said.
        Write to Paul Hannon at paul.hannon@wsj.com
        (END) Dow Jones Newswires

        July 29, 2015 06:00 ET (10:00 GMT)

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