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Irelands Economic outlook

Irelands Economic outlook. David Duffy. The Outlook. Dependent on world trade growth If forecast recovery materialises then Irish growth will improve in 2014 Household spending likely to remain weak, but some improvement due to employment growth Savings rate to remain around current levels

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Irelands Economic outlook

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  1. Irelands Economic outlook David Duffy

  2. The Outlook • Dependent on world trade growth • If forecast recovery materialises then Irish growth will improve in 2014 • Household spending likely to remain weak, but some improvement due to employment growth • 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

  3. Actual outturn Forecast range Actual outturn and median of forecasts The International Economy Euro AreaUnited States United Kingdom • Sources: Eurostat, FocusEconomics, IMF, OECD, HM Treasury and Federal Reserve Sources: FocusEconomics, Eurostat, IMF, OECD, HM Treasury and Federal Reserve

  4. International forecasts, GDP growth

  5. Economic Outlook

  6. Economic Outlook

  7. GDP, % Change, Volume Recession.......and recovery

  8. Emigration reducing unemployment • Level of employment and unemployment falling • Long-term unemployment fell 19,700 in Q4 2012 • Employment still falling in 2012 • Excluding agriculture, annual decrease of 10,600 in Q4 2012

  9. Contribution to GDP Growth

  10. Contribution to GDP Growth

  11. Redomiciledplcs, 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

  12. Redomiciledplcs, Irish output and the balance of payments GNP, € millions

  13. Redomiciled plcs and output

  14. 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?

  15. 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

  16. Low Growth • Unemployment rate remains high • Government Deficit • More austerity 2016-20? • Banks may well cost more money • Net Debt GDP ratio 2020 same as today • Any shock or additional problems • Possible downward spiral • Policy response?

  17. 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)

  18. 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

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