While a number of international concerns continue to cast a shadow on the domestic economy, both taxation receipts and labour market indicators suggest that the Irish economy continues to perform strongly in 2019. Output is still forecast to grow by 4.0 per cent in 2019 before moderating somewhat at 3.2 per cent in 2020. Unemployment is set to fall to 4.5 per cent by the end of the present year and to 4.1 per cent at the end of the next year. All forecasts, unless otherwise stated, maintain the Commentary’s baseline assumption that the trading status of the United Kingdom remains equivalent to that of a full European Union Member State.
The Economic and Social Research Institute is an independent research institute working towards a vision of 'Informed policy for a better Ireland'.The ESRI seeks to support sustainable economic growth and social progress in Ireland by providing a robust knowledge base capable of providing effective solutions to public policy challenges.The Institute was founded in 1960 by a group of senior civil servants, led by Dr T.K. Whitaker, who identified the need for independent and in-
Mainly due to domestic sources of growth, the Irish economy is still set to grow significantly in 2016. By May 2016 overall taxation receipts were up 9 per cent on the same time last year with income tax witnessing a 6 per cent increase over the same period. Between Q1 2015 and Q1 2016 total employment grew by almost 50,000. However, the weakening contribution of net trade to economic growth is underscored by recent high frequency economic data suggesting that the global slowdown in world trade may be impacting negatively on the Irish traded sector. Much of this is inevitably related to the lower economic growth rates being experienced in the US and the UK in 2016 compared with recent years.
We continue to believe that the Irish economy will grow strongly in 2015 with GNP set to increase by just over 4 per cent. Recent data from the Quarterly National Accounts show the economy grew by 2.3 per cent between Q3 and Q4 2014. The strong expected performance in 2015 comes after the Irish economy grew by over 5 per cent in 2014 with a significant portion of that growth due to increases in labour productivity.
The Irish economy is set to register a substantial growth performance in 2015 with the expected 6.7 per cent year-on-year increase in output unsurpassed since 2005. While the Irish recovery has benefitted from a weak Euro and strong economic performance amongst key trading partners, it is noteworthy, particularly given a variety of countervailing factors; the ongoing difficulties in the Irish financial sector, the related low levels of credit extended, the persistent high levels of private sector debt and the anaemic performance of many European economies since 2010.
GNP, which provides the best measure of the standard of living (and output) of Irish residents, is estimated to have grown by 3.3 per cent2 in 2013. This shows an economy that is recovering quite vigorously. The continuing improvement in the current account of the balance of payments, the rapid growth in employment and the signs of a pick-up in investment all point to a continuation of the recovery into 2014. As a result, on the basis of the information available to us today, we expect growth in GNP in 2014 of 3.5 per cent and that this pattern will continue into 2015, resulting in growth in GNP next year of 3.7 per cent.
The Irish economy has seen significant growth in 2014 with improvements observable across a broad set of key indicators. Output growth (both GNP and GDP) is set to increase by approximately 5 per cent while unemployment will fall to just over 11 per cent. A key feature of economic developments in 2014 has been the particularly strong performance of taxation receipts with all major items reporting significant year-on-year increases. The net consequence of this is a fiscal deficit of approximately 3.5 per cent for this year; this is a full percentage point better than was expected this time last year.
Understanding the pattern of growth in the Irish economy is very difficult this year. Many of the key indicators that one would normally rely on are affected by special factors. In particular, the data for industrial output, exports and, hence, GDP, are driven by an exceptional fall in the profitability of the pharmaceutical sector, a fall which has little if any direct impact on Irish economic welfare in the short run. For this reason, in explaining the current trends in the Irish economy we concentrate on GNP as a measure of economic welfare, a measure which is largely unaffected this year by these special factors.
The Irish economy has turned the corner and domestic demand in 2013 is estimated to have grown by 0.9 per cent, the first increase in this aggregate since the crisis began. It is a portent of a stronger recovery in 2014 and 2015. On top of this mild recovery in domestic demand, there is a continuing stimulus to the economy from the export sector, in particular from the growth in exports of services. When taken together these developments mean that GNP is likely to have grown by 2 per cent this year and the current-account surplus is likely to have further increased on the 2012 outturn.
The experience of the last five years has been truly exceptional, involving the worst economic crisis in Ireland since the Second World War. The legacy effects of this crisis include a dramatic increase in the indebtedness of the state as well as an exceptionally high level of unemployment. The purpose of this Medium-Term Review is, first, to explore how the Irish economy works; second, to set out a range of possible future scenarios for the economy and third to use these scenarios to consider how domestic policy might improve the possible outcomes. Because of the uncertainty about the future, we consider three possible scenarios or paths for the economy over the rest of the decade. It will be some time before we know which of these scenarios is most likely to be correct and policy needs to take account of this uncertainty.
Since the last Commentary, expectations for global economic activity have been scaled back once more. The outcome for 2012 is likely to be slightly more muted than had been expected, while any improvement in 2013 also looks set to be more subdued than previously thought. There are some signs that there could be a slight pick-up in growth in 2014. A resumption of trend growth in the eurozone would lead to an upward revision to Irish export growth forecasts, higher levels of GNP and GDP, an improvement in the public finances and a more speedy resolution of the public finances crisis.
TABLE OF CONTENTS: Summary Table Summary National Accounts Table 2012, 2013, 2014 CHAPTERS 1. The International Economy 2. Exports of Goods and Services 3. Investment 4. Incomes, Price and Consumption 5. Public Finances 6. The Labour Market 7. Imports and the Balance of Payments 8. Monetary Sector Developments 9. General Assessment of the Irish Economy Summary Forecast Tables are contained within the main text. Detailed Forecast Tables are contained in an Appendix. RESEARCH NOTES 33 The Effect of Re-domiciled Plcs on Irish Output Measures and the Balance of Payments ? John FitzGerald Measuring Credit Constraints for Irish SMEs ? Conor O'Toole, Petra Gerlach-Kristen and Brian O'Connell Consumption: Younger and Older Households in the Crisis ? Petra Gerlach-Kristen RESEARCH BULLETIN 59 How Much Does It Cost the Economy when Essential Services are Interrupted ? Sean Lyons and Edgar Morgenroth
The euro zone financial crisis remains unresolved. The euro zone economy is slipping into recession due to the impact of both the austerity measures and the effect of policy uncertainty in the euro zone on investment, consumer spending and employment. The euro zone banking system needs to be recapitalised, and account must be taken of the effect that the write‐down of Greek debt will have on this. The UK economy has been adversely affected by the euro zone crisis and is unlikely to meet its fiscal targets unless more restrictive measures are introduced, which in turn will worsen its economic performance. By contrast the US economy seems to be performing somewhat better than many had expected. Thus in the two regions that are of great importance in trade terms for Ireland – the euro zone and the UK – the country is facing weak or declining demand, while in the US, demand is growing modestly. The overall picture is weak.
Research Note 2012/2/1: Unit Labour Costs in Irish Manufacturing, Eddie Casey Research Note 2012/2/2: The Savings Rate during the Recession, Joe Durkan and Niall O'Hanlon Research Note 2012/2/3: The Impact of Recession on Migration: A Preliminary Analysis of Census 2011, Pete Lunn Special Article: The Irish Housing Market, David Duffy and John FitzGerald Research Bulletin 2012/2/1: Pharmaceuticals: Getting Better Value for Money, Paul Gorecki, Anne Nolan, Aoife Brick and Sean Lyons
Executive Summary Special Article: Irish Government Debt and Implied Debt Dynamics: 2011-2015, by John FitzGerald Special Article: User Cost and Irish House Prices, by David Duffy Research Bulletin 20110301: Selling State Assets: Three Options Research Bulletin 20110302: Parents, Children and Sense of Control Research Bulletin 20110303: The Effects of the Euro on Intra-Euro Area Exports Research Bulletin 20110304: What Has Happened to Marginal Tax Rates?
Research Bulletin 2010/01/01: Equality and Discrimination: Lessons from a Research Programme and a Conference, by Frances McGinnity & Helen Russell Research Bulletin 2010/01/02: Creating a Health Promoting Environment: The Role of Food Access, by Richard Layte Research Bulletin 2010/01/03: The Changing Workplace, by Dorothy Watson, Helen Russell & Philip J. O'Connell Research Bulletin 2010/0104: Support from Grandparents to Families with Infants, by Amanda Quail, Aisling Murray & James Williams
ESRI Research Bulletins: A Good News Story About Irish Health Care Layte, Richard, ESRI Research Bulletin No. 2010/04/01. On International Equity Weights and National Decision Making on Climate Change, Anthoff, David, Tol, Richard S J, ESRI Research Bulletin No. 2010/04/02. Progression in Higher Education: The Value of Multi-Variate Analysis, McCoy, Selina, Byrne, Delma (National University of Ireland, Maynooth), ESRI Research Bulletin No. 2010/04/03. Cultural Differences in Parenting Practices Murray, Aisling, ESRI Research Bulletin No. 2010/04/04. and Private Utilisation of In-Patient Beds in Irish Acute Public Hospitals, O'Reilly, Jacqueline, Wiley, Miriam M, ESRI Research Bulletin No. 2010/04/05.
This paper examines recovery scenarios for the Irish economy. It estimates that the growth rate in potential output is 3% a year. This takes account of a permanent loss of output of 10% of GDP as a result of the recession. On this basis, and taking account of government fiscal action this year and in 2010, the governments structural deficit is estimated to fall to between 3 and 4% of GDP by the end of 2010. The analysis suggests that when the world economy recovers the Irish economy will follow suit recovering some lost ground. Should the world recovery be delayed until 2012 this would inflict some further damage but the Irish economy would still see quite rapid growth in the postponed recovery phase.
