July 20, 2017 / 11:08 AM / a month ago

Ireland must be careful not to overheat economy - finance minister

Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem greets Irish Finance Minister Paschal Donohoe during Eurozone finance ministers meeting in Brussels, Belgium July 10, 2017.Francois Lenoir

DUBLIN (Reuters) - There are no signs at the moment of Ireland's economy overheating but the risk could develop, particularly as the government increases capital investment, Finance Minister Paschal Donohoe said on Thursday.

Ireland's economy has grown faster than any other in the European Union for the last three years and is showing few signs of slowing down, with employment expanding at its fastest rate since the financial crisis.

The government plans to further stimulate growth through a near doubling of capital spending over the next five years, which remains among the lowest in the bloc after it ground to a near-halt during the crisis.

"We need to be very careful that we don't increase capital expenditure to a level that can cause other difficulties within the economy," Donohoe told a parliamentary committee.

"...I don't see signs of overheating at the moment but it is a risk that could develop in the coming years and it is a risk we have been burned by in the not-so-recent past."

The head of Ireland's independent fiscal watchdog also said this week that there were no signs yet that growth rates were unsustainably high, but that overheating could not be ruled out and the government needed to be careful with further stimulus.

Donohoe has warned that the labor market could soon begin to experience capacity constraints but said on Wednesday there was still room for further cuts in the unemployment rate, currently at 6.3 percent.

"But if we see unemployment begin to fall significantly below 6 percent, that then means we have to consider other things in terms of the ability of the economy to then translate more investment by the taxpayer into more activity as opposed to higher prices," Donohoe said.

Britain's exit from the EU - a major risk to the Irish economy - or developments in the U.S. economy could also mean that overheating risks did not materialize.

Donohoe echoed remarks from Prime Minister Leo Varadkar that the government may have room to increase the 300 million euros currently available to cut tax and increase spending in 2018, but that he was "not expecting it to multiply".

Donohoe said the budget would be presented on Oct. 10 and that one measure being considered to aid firms vulnerable to Brexit was possible enterprise support from the European Investment Bank (EIB).

editing by John Stonestreet

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