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Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and Reform Economic Outlook underpinning Budg

Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and Reform Economic Outlook underpinning Budget 2014 8 October 2013. SPU Forecasts. Developments since then. National Accounts outturn surprised on the downside. External developments. External assumptions.

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Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and Reform Economic Outlook underpinning Budg

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  1. Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and Reform Economic Outlook underpinning Budget 2014 8 October 2013

  2. SPU Forecasts

  3. Developments since then

  4. National Accounts outturn surprised on the downside

  5. External developments

  6. External assumptions

  7. Q2 export market growth better than expected

  8. And conjunctional indicators are positive

  9. Weakness in exports in Q1 but service exports remain strong

  10. While the “patent cliff” is impacting on goods exports • Decline in exports to the US is indicative of patent expiry • Exports of both organic chemicals and finished products down sharply

  11. Domestic developments

  12. Signs of stabilisation in “core” retail sales • Core retail sales have increased in each of the last 4 quarters • Headline sales revised slightly upward over the summer

  13. Supported by continued LM improvements • Three successive quarters of annual employment growth, with employment increasing by 1.8% in Q2 • The unemployment rate has fallen 1.7 pp since Feb 2012

  14. But savings rate remains elevated

  15. And nominal wages have been broadly stable

  16. Signs of recovery in “core” investment

  17. While tourism is out-performing expectations • Up 7 per cent y-oy- in June, with gains across all regions • Tourism expenditure netted out of GDP, but impacts employment and taxes

  18. Outlook 2014

  19. Budget 2014 work in progress macroeconomic forecasts

  20. Exports being dragged down by goods

  21. Real household income - labour income growing in 2014

  22. Signs of a breakdown of Okun’s law

  23. Fall in productivity due to compositional shift

  24. Labour market outlook more positive

  25. But employment growth dominates the impact • Labour force makes light positive contribution to unemployment (endogenous) • But employment growth is making the main contribution to the contraction in unemployment

  26. Exports below level suggested by historical patterns

  27. But nominal GDP to come in below expectations

  28. Current A/C and GNP • GNP boosted strongly by re-domiciled plcs from UK in 12. Strong carryover, though this effect stalled in H1 13

  29. Current account largely stable • Decline in merchandise balance (pharma) largely offset by services balance growth over horizon • Income balance reduced in 2013 in response to falling net exports • Transfer balance impacted by EU Budget contributions

  30. Inflation – expected to pick-up modestly next year • Assumed reversal of 2011 Jobs Initiative VAT measures expected to add about 0.5pp to HICP – reflected in strong services growth • Drag from NEIG goods and clothing/footwear expected to ease with stronger GDP

  31. Inflation forecast - top down approach

  32. GDP deflator – export prices

  33. GDP deflator – import prices

  34. Key risks to forecasts External environment • Global growth may not recover as expected • Re-intensification of euro area macro financial issues Internal environment • Pharma cliff contraction intensifies • High household debt weighs on consumption However, stronger growth than expected in our trading partners could lead to stronger growth here

  35. Impact of shocks using HERMES

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