Unemployment will fall below 9 per cent and gross domestic product will grow by 5.4 per cent this year, a performance that will see Irish economic growth exceed that of the rest of Europe,employers’ group Ibec has said.

In its latest quarterly economic outlook, the group said quantitative easing by the European Central Bank (ECB), lower oil prices and favourable exchange rates were all set to boost the Irish economy.

It nevertheless warned that the Government would still have limited room to manoeuvre on the fiscal front and called on it to prioritise cuts to the marginal tax rate for all workers.

Ibec also called on the Government to “ramp up” capital investment, saying historically low interest rates gave Ireland a “once-in-a-generation chance to invest ambitiously in the country’s future”. It said the Government should commit to spending 4 per cent of GDP on infrastructure by 2020.

“Housing under-supply in key urban centres has the potential to undermine competitiveness and make it more difficult to attract and retain talented workers. The Government needs to do much more to address supply shortages. Our transport network is also far from complete.”

Pay increases

While strong economic growth will in time feed into pay increases, the employers’ group said that different sectors and companies were recovering at different rates.

Two-thirds of domestic services companies and half of traditional manufacturing companies were unable to afford pay increases this year, it said.

On public sector pay, Ibec said pay cuts were likely to be reviewed over the coming years, but productivity improvements must be maintained. It said pay levels should not be allowed to drift way off line with competitor economies again.

“Public sector pension reform is urgently required and it must be part of any review of public sector remuneration.”

Ibec’s head of policy and chief economist Fergal O’Brien said the Government needed to manage the recovery sensibly and the policy of continuing to tax high-skilled workers at a “penal” 52 per cent did not make economic sense.

It said the policy changes sought by Ibec could be delivered while reducing the deficit and debt levels and prioritising balanced recovery across different sectors and regions.

Ibec’s five priorities for the Government’s spring statement are: reducing the marginal tax rate; tax changes to stop “penalising entrepreneurs”; increased capital investment; the prioritisation of education and research; and a sensible review of public sector pay.

Ibec said Ireland needed to start reversing the cuts in education and research immediately. This would include ensuring resources are in place to promote literacy and numeracy, reform the junior cycle, support the professional development of teachers, adequately fund third-level and encourage R&D.