After expanding very strongly over the past two years, the economy is projected to grow at a more sustainable pace in 2017 and 2018. Notwithstanding this moderation, domestic demand will remain solid. As the labour market tightens, wage pressures will continue to be strong, which is projected to feed into higher inflation. Firms are projected to expand at a slower pace than in past years due to already high labour costs and high external uncertainty, including the final outcome of the Brexit negotiations.
Given elevated uncertainties, policies should firmly focus on underpinning stability and making the economy resilient against shocks. The government should ensure that its medium-term goal of balancing the budget is met, thus leaving room to use fiscal policy to support growth if needed. The authorities should support a further resolution of non-performing loans by improving the process of repossession. They should tighten macro-prudential policies if the rapid rise in property prices fuels new property-related lending more than projected.
Ireland enjoys a high degree of openness to the global economy and has many highly-productive multinational enterprises. It can better take advantage of them by facilitating knowledge spillovers and the expansion of productive firms, which would require strengthening the financial system. Some recently introduced government programmes should improve job mobility. Among them, Springboard, Momentum and ICT conversion courses have been found to be effective in reskilling and upskilling.