Quarterly Economic Commentary, January 1984

Baker, T.J. and Callan, T. and Scott, S. and Madden, D. (1984) Quarterly Economic Commentary, January 1984. [Working Paper]

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Abstract

The international economic recovery became quite firmly established in 1983, with substantial growth recorded in North America, Japan, and to a lesser extent the UK. Against this background, the decline in the Irish economy was halted, and substantial gains were made in several aspects. The overall growth rate was miniscule at about Y2 per cent, but there was a massive improvement in the balance of payments, a significant increase in industrial output, a marked reduction in the rate of inflation, some slowing down in the growth of unemployment, and a small reduction in tpe budget deficit as a proportion of Gross National Product. It seems likely that 1984 will see a continuation of most of these trends. Gross National Product should increase by about 2 per cent in volume, the current account balance of payments deficit should fall to around £50 million, and the increase in consumer prices should be held to about 8Y2 per cent. However, the indications are that progress will continue to be very slow in relation to the two major problems of unemployment and the public finances. Employment could well stabilise at about its present level and even increase slightly later in the year, but this would still leave unemployment increasing at a rate of some 18,000 per year because of the growth in the labour force. On the assumption of a passive budget, in which both income tax bands and specific rates of excise duty are indexed in line with inflation, it seems probable that there would be very little change in the size of the nominal current budget deficit, although it would be reduced as a proportion of Gross National Product. While neither of these outcomes can be regarded as at all satisfactory, there is little room for manouevre in budgetary strategy. Too determined an attempt to reduce the deficit could impair the expected recovery and increase the rise in unemployment, while trying to reduce unemployment by allowing the deficit to rise would be a short-term expedient which would intensify both problems in the longer term. Probably the most hopeful strategy would be to aim for a slightly lower deficit, while hoping that this and other current forecasts of the rate of economic recovery prove unduly cautious.

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