The Size of the Pain To Come

By Eoin Fahy, Thursday, 4th November 2010 | 0 comments

The Government has just published the much-awaited outline of the size of budget cuts to come in next year's Budget, and beyond.  The headline is that €6bn of spending cuts and tax increases will come next year, with another €9bn over the following three budgets.  Together, this is planned to bring down the deficit to 9.5% of GDP in 2011, and 3% of GDP by 2014, as required by the EU. 

Moving beyond the headline numbers, it's important to check that the forecasts are realistic, and so it's encouraging to see that the growth forecasts underlying the figures - at least in the short-term - are if anything more conservative than the consensus.  The government is forecasting growth of 1.8% (GDP) in 2011, compared to the recent survey of economists by Reuters which gave a median forecast of 2%.  For 2012, the government's forecast for 2012 is 3%, exactly in line with consensus.

There are many more details to come in the Budget itself, and it remains to be seen in any case if the Government can get the Budget through the Dail.  So we are far from out of the woods yet!  But perhaps today's news at least helps by bringing some certainty to the markets in terms of the Government's plans.

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