Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and ReformEconomic Outlook underpinning Budget 20148 October 2013
2012 2013 2014
GDP 0.9 1.3 2.4
Consumption -0.9 0.2 1.1
Government -3.7 -2.1 -2.0
Investment 1.2 3.7 8.2
Exports 2.9 2.3 3.0
Imports 0.3 1.8 2.3
Employment -0.6 0.4 1.1
Unemployment 14.7 14.0 13.3
HICP 2.0 1.2 1.8
SPU Forecasts
3
Developments since then
4
National Accounts outturn surprised on the downside
2012 2013
y-o-y % change
SPU Outturn Q1 Q2
GDP 0.9 0.2 -1.0 -1.2
Consumption -0.9 -0.3 -1.1 -1.3
Government -3.7 -3.7 -1.8 -1.7
Investment 1.2 -1.0 -19.6 1.0
Exports 2.9 1.6 -4.1 1.0
Imports 0.3 0.0 -4.0 2.6
5
External developments
6
SPU forecast Current outlook2013 2014 2013 2014
Euro/GBP 0.85 0.85 0.85 0.84Euro/US Dollar 1.31 1.31 1.32 1.34Brent Crude (€ per barrel) 80 76 82 78
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13£0.75
£0.77
£0.79
£0.81
£0.83
£0.85
£0.87
£0.89
€70
€75
€80
€85
€90
€95
€100Currencies and oil
GBP/EUR (RHS)Brent Crude (€) (LHS)
Technical assumptions:Currencies assumed unchanged from
10 day MA; Oil prices assumed to move in-line with futures prices
External assumptions
7
Q2 export market growth better than expected20
12q1
2012
q2
2012
q3
2012
q4
2013
q1
2013
q2
2012
q1
2012
q2
2012
q3
2012
q4
2013
q1
2013
q2
2012
q1
2012
q2
2012
q3
2012
q4
2013
q1
2013
q2
US UK euro area
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
q-o-
q %
chan
ge
8
And conjunctional indicators are positive
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-1340
42
44
46
48
50
52PMI Data
UK Composite
Euro area composite
above 50 = expansion
9
Weakness in exports in Q1 but service exports remain strong
2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q215,000
16,000
17,000
18,000
19,000
20,000
21,000
22,000
23,000
24,000 Export GrowthExport of GoodsExport of Services
€ m
illio
n (c
onst
ant p
rices
, sa)
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
Core retail sales have increased in each of the last 4 quarters Headline sales revised slightly upward over the summer
Signs of stabilisation in “core” retail sales
2010 2011 2012 2013-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4% Personal consumption
Core Retail Sales
y-o-
y %
cha
nge
13
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
Jan
Feb
Mar
chAp
rilM
ayJu
ne July
Augu
stSe
ptem
ber
Oct
ober
Nove
mbe
rDe
cem
ber
Janu
ary
Febr
uary
Mar
chAp
rilM
ayJu
ne July
Augu
stSe
ptem
ber
Oct
ober
Nove
mbe
rDe
cem
ber
Janu
ary
Febr
uary
Mar
chAp
rilM
ayJu
ne July
Augu
stSe
ptem
ber
Oct
ober
Nove
mbe
rDe
cem
ber
Janu
ary
Febr
uary
Mar
chAp
rilM
ayJu
ne July
Augu
st
2010 2011 2012 2013
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%Labour market developments
Employment (lhs)
Live Register (SA, rhs)%
y-o
-Y C
hang
e
Leve
l, %
Supported by continued LM improvements
14
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%Savings rate (SA)
But savings rate remains elevated
15
And nominal wages have been broadly stable
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%Earnings composition
Average Weekly Paid Hours (Hours)
Average Hourly earnings (Euro)
Earnings per Week (Euro)
% y
-o-y
cha
nge
16
Signs of recovery in “core” investment
2010 2011 2012 2013-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%Contribution to investment
Building & ConstructionM&E - less planesOther Transport (incl. planes)Total
y-o-
y %
chan
ge
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
Great Britain Other Europe North America Other Areas0
100
200
300
400
500
600
700
800
900Trips to Ireland by Area of Residence
Jun-Aug 10 Jun-Aug 11 Jun-Aug 12 Jun-Aug 13
'000
18
Outlook 2014
20
2012 2013 2014
GDP 0.2 0.2 1.8
Nominal GDP (€m) 163,950 165,875 170,300
GNP 1.8 1.0 1.4
Consumption -0.3 -0.2 1.1
Government -3.7 -0.9 -1.9
Investment -1.0 4.9 6.8
Exports 1.6 -0.6 1.9
Imports 0.0 -0.4 1.4
Employment -0.7 1.6 1.4
Unemployment 14.7 13.5 12.6
HICP 2.0 0.7 1.5
Current A/C (% of GDP) 4.4 4.4 4.1
Budget 2014 work in progress macroeconomic forecasts
21
Exports being dragged down by goods
2012 2013 2014-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
-3.6-4.0
-1.0
6.9
2.7
4.5
1.6
-0.6
1.9
Services exportsGoods exportsExports
22
Real household income - labour income growing in 2014
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-15
-10
-5
0
5
10
15
20 ∆ personal consumption defla-tor∆ other household income∆ net cash transfers∆ profit income∆ labour income∆ real Yd
% y
-o-y
cha
nge
23
Signs of a breakdown of Okun’s law
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
0
2
4
6
8
10
12
14
16
18
20 Labour market and output (Okun's Law)
actual une rate fitted une rate
% o
f lab
our f
orce
24
Fall in productivity due to compositional shift
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%Productivity
Employment GrowthLabour ProductivityGDP growth
% y
-o-y
cha
nge
25
Labour market outlook more positive
2012 2013 201412
12.5
13
13.5
14
14.5
15 Unemployment rate forecastsSPU forecastBudget 2014
% o
f lab
our f
orce
26
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
2011 2012 2013 2014-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%Contributions to unemployment rate decline
Contribution from labour forceContribution from employment growthPP change in unemployment Rate
27
Exports below level suggested by historical patterns
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0 Export model
∆ exports_actual ∆ exports_fitted
year
-on-
year
per
cen
t cha
nge
28
But nominal GDP to come in below expectations
2012 2013 2014158
160
162
164
166
168
170
172
174
176 Nominal GDPSPU forecastBudget 2014
€bill
ion
29
Current A/C and GNP
2012 2013 2014
GNP (yoy % change) 1.8 1.0 1.4
Current account (% of GDP) 4.4 4.4 4.1
GNP boosted strongly by re-domiciled plcs from UK in 12. Strong carryover, though this effect stalled in H1 13
30
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
2012 2013 2014-25
-20
-15
-10
-5
0
5
10
15
20
25
30
22.2 21.2 19.9
-19.0 -18.4 -18.7
2.0 2.5 4.0
-0.7 -1.0 -1.0
4.4 4.4 4.1
Transfer balance Services balance Income balanceMerchandise balance Current account
31
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
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%Contributions to HICP
Food Alc and tobacco NEIG EnergyCore Services Admin Services y-o-y HICP
y-o-
y %
cha
nge
32
Inflation forecast - top down approach19
86q2
1987
q119
87q4
1988
q319
89q2
1990
q119
90q4
1991
q319
92q2
1993
q119
93q4
1994
q319
95q2
1996
q119
96q4
1997
q319
98q2
1999
q119
99q4
2000
q320
01q2
2002
q120
02q4
2003
q320
04q2
2005
q120
05q4
2006
q320
07q2
2008
q120
08q4
2009
q320
10q2
2011
q120
11q4
2012
q320
13q2
2014
q120
14q4
-3
-2
-1
0
1
2
3
4
5
6
7Quarterly CPI (excl. mortgage)
Actual Quarterly CPI (excl. mrtg)
Fitted Quarterly CPI (excl. mrtg)
y-o-
y %
cha
nge
33
GDP deflator – export prices
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0export prices_actual
export prices_fitted
34
GDP deflator – import prices
1999q1
1999q3
2000q1
2000q3
2001q1
2001q3
2002q1
2002q3
2003q1
2003q3
2004q1
2004q3
2005q1
2005q3
2006q1
2006q3
2007q1
2007q3
2008q1
2008q3
2009q1
2009q3
2010q1
2010q3
2011q1
2011q3
2012q1
2012q3
2013q1
2013q3
2014q1
2014q3-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
import prices_actual, y/y
import prices_fitted y/y
35
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
Key risks to forecasts
36
Impact of shocks using HERMES
Year 1 Year 2
% change compared to base
1% increase in world output
GDP 0.8 0.9
1 pp increase in savings rate
GDP -0.3 -0.3
1 pp increase in interest rate
GDP -0.3 -1.1
37