Irelands Economic outlook
David Duffy
The Outlook

Dependent on world trade growth


Household spending likely to remain weak, but some
improvement due to employment growth






If forecast recovery materialises then Irish growth will improve in 2014
Savings rate to remain around current levels
Investment to increase (FDI and a number of big projects)
Export growth continues to increase, mainly due to services
Although unemployment will fall it remains high
Public finances to improve again
GDP to increase by 1.8 per cent in 2013 and 2.7 per cent in
2014
The International Economy
Euro Area
United States
United Kingdom
4
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-4
-5
-5
-5
3
2
1
0
-1
-2
-3
Actual outturn
Forecast range
Actual outturn and median of forecasts
Sources: Eurostat, FocusEconomics, IMF, OECD, HM Treasury and Federal Reserve
International forecasts, GDP growth
4.5
4
Annual % change
3.5
3
World 2013
2.5
World 2014
2
US 2013
1.5
US 2014
Eurozone 2013
1
Eurozone 2014
0.5
UK 2013
0
UK 2014
-0.5
-1
Jan
2012
Apr
2012
July
2012
Oct
2012
Jan
2013
Apr
2013
Economic Outlook
2011
2012 2013(f) 2014(f)
Consumption
-2.4
-0.9
-0.4
0.4
Government
-4.3
-3.7
-1.0
-2.0
Investment
-12.6
1.2
1.6
5.5
Exports
5.1
2.9
3.0
5.3
Imports
-0.3
0.3
2.3
4.3
Economic Outlook
2012
2013(f)
2014(f)
0.9
1.8
2.7
14.7
14.2
13.9
1.7
1.5
1.7
Budget Deficit (GGB)
(% GDP)
-7.6
-7.2
-4.6
GNP (% change)
3.4
1.0
1.5
Domestic demand
(% change)
-1.5
0.7
0.7
GDP (% change)
Unemployment (%)
CPI (% change)
GDP, % Change, Volume
14
Celtic Tiger period
12
Domestic Driven
Growth
+11.5%
Recession.......and
recovery
10
Per cent change
8
6
ESRI Forecasts
2013-2014
4
2
0
-2
1989
1994
1999
2004
2009
-4
-6
-8
-5.5%
2014
Emigration reducing unemployment

Level of employment and unemployment falling


Long-term unemployment fell 19,700 in Q4 2012
Employment still falling in 2012

000s
80
60
40
20
0
-20
-40
Excluding agriculture, annual decrease of 10,600 in Q4 2012
Long-term Unemployment, Annual Change
Total
Males
Females
Contribution to GDP Growth
8
6
4
2
0
-2
2008
2009
2010
2011
2012
2013
-4
-6
-8
-10
-12
Total Domestic Demand (incl. stocks)
Net Exports
2014
Contribution to GDP Growth
8
6
4
2
0
-2
-4
-6
-8
-10
-12
2009
2010
Consumption
2011
Government
2012
Investment
2013
2014
Net exports
Redomiciled plcs, Irish output and the balance of
payments


A number of companies have relocated HQ to
Ireland without generating real activity
(redomiciled plcs)
Inflow of profits, only some of which is paid
out in dividends


Recorded inflows are much higher than recorded
outflows
Impact on measured BoP current account
surplus and nominal GNP
Redomiciled plcs, Irish output and the balance of
payments
GNP, € millions
150000
Current Account, % of GNP
8.0
6.0
140000
4.0
130000
120000
2.0
110000
0.0
100000
90000
-2.0
80000
-4.0
70000
60000
-6.0
GNP - Adjusted
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GNP -Published
-8.0
Unadjusted
Adjusted
Redomiciled plcs and output
6
4
2
0
-2
-4
-6
-8
-10
2009
2010
2011
2012
GNP
GNP adjusted
Medium Term Outlook

Backdrop of high debt levels


Two different paths
Recovery scenario – virtuous circle

Failure to fix banks?



Realising state’s financial assets
Failure to provide credit to fund recovery
Low growth scenario – vicious circle?

Cause is external to Ireland

What can policy do?
Recovery





Stronger growth from 2015
Unemployment rate declines
Government surplus 2018
 Neutral fiscal policy 2016-20
Further benefits – realise financial assets
 Reduce net debt GDP ratio below 60%?
Issues:
 Banks, labour market
Low Growth


Unemployment rate remains high
Government Deficit


Banks may well cost more money


Net Debt GDP ratio 2020 same as today
Any shock or additional problems


More austerity 2016-20?
Possible downward spiral
Policy response?
Assessment



When account taken of redomiciled plc profit
flows economic performance weaker than
estimated
Balance of payments surplus smaller – less
potential impact on growth
Domestic issues
 Availability of credit
 Business and Consumer Confidence
 Unemployment (especially LTU)
Assessment




External sector, particularly services exports, main driver of
growth in 2012 and over forecast period
 Forecasts of upturn in international economy important
Domestic economy remains weak but should start to make
contribution to growth from 2013 and 2014
 Investment growth, small upturn in PCE in 2014
Unemployment rate will only fall gradually
 Initially due to net emigration
Public finances set to meet targets
 Continue with planned consolidation measures