What impact will budget 2008 have on the Irish economy?
We dont think Budget 2008 markedly alters the outlook for the Irish economy in the coming year. We think Budget day tax and social welfare changes could have been a little larger and supported a stronger outlook for growth in spending power in 2008. That said, we remain of the view that the Irish economy is reasonably resilient. In particular, we think employment in services will remain reasonably healthy and layoffs in construction could be less threatening than some envisage. As we also expect lower borrowing costs next Spring, we think consumer spending will be marginally stronger than the Department of Finance envisages. However, we also worry that merchandise exports may not grow as much as the Budget forecast implies. Drawing together these slight differences, we arrive at a broadly similar outlook for GDP and GNP growth to that of the Minister. At the margin, we think inflation might be a touch higher than the Department of Finance forecast suggests as strong upward pressure on
