Ireland doubles 2021 economic growth forecast, budget plans unchanged

By Padraic Halpin

DUBLIN (Reuters) -Ireland on Thursday doubled its forecast for economic growth this year but will not increase its budget package for 2021 as it aims to get the public finances in "far safer" shape than previously expected, Finance Minister Paschal Donohoe said on Thursday.

Finance ministry chief economist John McCarthy said he would not read too much into forecast gross domestic product growth of 15.6% this year due to the ways multinationals can distort Irish GDP. He said he would instead focus on the expected 5.2% growth in modified domestic demand.

GDP jumped 21.6% year-on-year in the second quarter as Ireland emerged from one of Europe's strictest lockdown, while modified domestic demand - which strips out some of the ways multinationals can distort the data - grew by 15% over the same period.

The finance ministry also expects unemployment to be around one percentage point lower for each of the next three years, falling to 7.2% in 2022 and 5.3% in 2024.

Inflation is expected to peak above 4% in the final quarter of the year before falling back below 2% in the third quarter of 2022, the forecasts showed.

The government decided in July to narrow its budget deficit more gradually than planned in order to increase capital spending in particular on housing and climate change.

Donohoe said he would not use the better than expected growth to further increase the amount of money available for spending hikes and tax cuts in the Oct. 12 announcement of the budget for 2022.

Public Expenditure Minister Michael McGrath also said government departments are unlikely to spend the record 90.7 billion euros allocated for 2021, raising the prospect of a markedly narrower budget deficit than the 5.1% forecast in July.

Donohoe is due to update the deficit and debt forecasts at or ahead of the budget, taking account of spending and tax figures for September that are due to be published on Monday.

(Reporting by Padraic Halpin; Editing by Edmund Blair and Hugh Lawson)