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Rise in State spending ran ahead of growth last year

The rise in Government spending – led by wages – raced ahead of growth in the domestic economy last year, according to official figures.

It comes as Public Spending Minister Paschal Donohoe warned that a growing clamour for wage increases must be balanced against the limited available finances.

In a speech at an industrial relations conference in Dublin, the minister called for “pragmatism, realism and compromise” amid rising public sector pay demands.

That includes the latest call from the country’s main nursing union, which will seek a 12pc pay rise for its 40,000 members on top of general public sector increases in wage talks this year.

Yesterday, official data from the Central Statistics Office (CSO) showed Irish growth levels plunged dramatically in 2015, but that was a result of the most extreme effects of so-called ‘Leprechaun Economics’ appearing to wear.

Official preliminary growth figures show the economy grew by 5.2pc in 2016, measured in terms of gross domestic product (gdp).

That’s down from the officially reported 2015 growth rate of 26pc, a widely mocked reading.

Setting those anomolies aside, Irish growth remained the strongest in the European Union last year, dwarfing average euro area growth of less than 2pc.

Government spending, up 5.3pc, the bulk of which is made up of public sector pay, rose faster than the overall economy, and dramatically faster than the rest of the domestic economy last year, the figures show.

Personal consumption, seen by experts as a good measure of true activity in the domestic economy, was up 3pc in 2016. That was down sharply from 4.5pc growth in 2015.

Economists yesterday said the figures were positive, even though the pace of growth had slackened off.

Davy Stockbroker’s Conall Mac Coille said growth in 2016 was well ahead of the rest of Europe and better forecast.

Falling unemployment, wage growth and inflation “on the floor” mean purchasing power for individuals is improving, he said.

“There’s no sense that the economy is slowing down, and now 2017 is shaping up to be another strong year,” he said.

While weaker sterling last year was seen by many as a blow to the economy, especially exporters, the overall effect included keeping prices cheaper at home.

“One-third of imported consumer goods in Ireland come from the UK, so that sterling’s weakness helped keep Irish consumer inflation close to zero,” he said.”UK consumers are now seeing their purchasing power squeezed by higher import prices, the opposite is happening in Ireland – which will help sustain consumer spending in 2017.”

Alan McQuaid of Merrion Fixed Income, another brokers, said the 2016 figures were positive, but warned that Brexit is likely to hit growth this year.

“Personal spending and construction activity appear to be holding up, which is encouraging. However, we do expect that Brexit worries will intensify in 2017, leading to lower overall GDP growth this year,” he said.

The CSO data recorded growth of 9pc last year, in terms of gross national product (GNP), a measure that leaves out some activities of multinationals.

However, huge swings linked to multinationals continued to distort the official statistics.

The CSO figures showed a staggering 45.5pc increase last year in capital formation – a term that usually refers to investment. In reality, it may have been just one deal, involving a multinational shifting intellectual property valued at about €20bn to Ireland from overseas.

The deal, or deals, which the CSO would not provide details about, had a knock-on effect on other data, including export figures.
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