Dr. Kieran McQuinn:

When thinking about overheating, people tend to think about fiscal policy, tax and Government expenditure and that is central to any discussion of overheating. Based on our experience in this country, and in many other OECD countries over the past ten years, it is very important that we focus both on fiscal policy and on what we call the financial cycle and in particular on how much credit is being extended in the real economy. What we have been struck by over the last period, and we are not the only ones, is there has been a very significant pick-up in credit. This is understandable in the context of the housing market picking up, more people buying properties and greater activity in the market. We need to heed the lessons of the past. The real difficulty we got into back in 2007 and 2008 was not all necessarily down to the fiscal policy side of things. It was down to the combination of fiscal policy and credit policy. It is certainly something we need to keep an eye on. The committee has just heard from representatives of the Irish Fiscal Advisory Council. Their assessment is the economy is very near potential. It is worth putting in context that the economy has been growing very rapidly. The challenge, as we said in our comments, is to see how we can ensure we go from an economy that is growing very rapidly because we are recovering from a very pronounced downturn and to try to transition that to more sustainable rates of growth over the medium term. Most other commentators, including the Irish Fiscal Advisory Service and the Central Bank, would not say the economy is overheating but they would flag it as a concern. We need to broaden our understanding of it in terms of looking at it from both the fiscal and financial side of things.