The Economic and Social Research Institute has downgraded its forecast for house building and growth in the domestic economy for this year.

It is the second organisation to reduce its projections after the Central Bank reached a similar conclusion last week.

The ESRI said it expected 33,000 homes to be built this year, which is 1,000 less than it previously forecast.

It would be far short of the Government’s current target of 41,000.

Speaking on RTÉ’s Morning Ireland, Minister for Finance Paschal Donohoe said he believes a pledge to build 300,000 homes during the lifetime of the Government “is doable” but will be demanding.

The minister said many challenges in the housing sector relate to issues like energy and water.

“If you have a growing population and a growing economy, it places a greater level of demand on the energy that we have available, and we’re looking to change the nature of that energy as well,” he said.

“Thankfully, we’re in a position to make these investments and by getting the investment decisions right on infrastructure, that is how we in turn create the environment, along with what we’re doing in planning and other decisions we have made”.

The ESRI warned that house building is continuing to fall short of demand.

It said it reduced its forecast for residential construction due to issues with infrastructure, problems with financing for building and labour shortages.

It said house building in the first three months of this year was weaker than it had expected.

The ESRI also downgraded its growth forecast for the domestic economy for this year from 3% to 2.3%.

It said the general uncertainty and the weaker global outlook is going to affect investment while it also expects consumption to be lower as consumers are more cautious.

It warned the public finances are heavily dependent on windfall corporation tax receipts from multinationals.

Minister Donohoe said the economy is still growing, but the country faces challenges that will require choices.

He said that the Government has published an “alternative scenario for how our economy could develop” but that Ireland was approachingchallenges from a position of strength.

Speaking on RTÉ’s Morning Ireland, he said that the Government had laid out a baseline scenario if tariffs were not permanently applied, but also identified an alternative scenario in which tariffs become a more permanent feature.

In relation to US tariffs on the pharma sector, he said the situation is still unclear.

“The reason that is not yet clear is President Trump’s administration is conducting an assessment of the life science and pharmaceutical sector.

“What we are doing with the European Commission and through the European Commission is making the case for supply chains, making the case for medicine made and available across the world and the role that Ireland can play in doing that in an affordable way.

“But what we remain to see, yes is what the United States assessment will be”.

ESRI director Alan Barrett said: “While the headline public finance figures appear healthy, the fact that Ireland is running a fiscal deficit (once the headline numbers are corrected for windfall revenues) appears risky.”

Mr Barrett said that the economy continued to perform well and the ongoing increase in the numbers employed was “very welcome”.

He added it was “difficult not be unsettled by global uncertainties”.

The ESRI expects GDP growth, which includes the contribution from multinationals, will be 4.6% this year and 2.9% next year.

It also expects there will be robust growth in exports.

Associate Research Professor at the ESRI Dr Conor O’Toole said that while the domestic economy “appears relatively robust” and is growing “reasonably well”, Ireland relies heavily on the US for trading.

“We’re a small, open economy, we’ve a heavy reliance on the US for trading activity, and there’s just an incredible amount of uncertainty at the moment in the domestic and international economy,” he said.

Also speaking on RTÉ’s Morning Ireland, Dr O’Toole said there is a “housing need” of upwards of 50,000 units per year and Ireland is “well shy” of that.

He said there were about 30,000 units last year, which was “disappointing”, and while they were hoping that would come up this year, the “momentum doesn’t appear to be there”.

Trying to unlock growth in housing supply is a “very complicated set of multifaceted factors”, including labour constraints and challenges from infrastructure provision and the planning system, Dr O’Toole added.

“All of these factors interplay with each other and weigh on the outlook and create challenges for the production of housing,” he said.

Speaking about Ireland’s reliance on corporation tax, Minister Donohoe saud that if Ireland sees a big change in corporate tax receipts in the future, the Government has a budget surplus to absorb that change.

“If that budget surplus is not adequate, we then have money set aside in a fund called Future Ireland Fund to help us transition to a lower level of corporate tax revenue.

“In terms of choices that the Government will make in relation to current spending, this is what myself and Minister Chambers are working on at the moment.”

He said he is “absolutely well aware of the impact of the cost of living” and the difficulty it poses for many.

But, he said that what every budget has done is find different ways of helping with the cost of living.

“But I have to make the case that the kind of measures that we’ve had in the past of €2.5 billion packages, of packages of that scale, were in place when we had inflation of 5%, 10%, 15% and we should not and I believe will not repeat that again.

“But we will find other ways budget by budget and all for four to five budgets, instead of helping with and responding back to the needs within our society”.

Article Source – ESRI downgrades house building and domestic growth forecasts

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