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Economic and fiscal outlook
John McCarthy, Department of Finance
22 May 2017
External environment generally supportive though highly uncertain...
US (GDP=lhs; PMI=rhs)
EA (GDP =lhs, PMI = rhs)
UK (GDP=lhs; PMI=rhs)
1.4
60
1.2
58
1.2
60
58
1.0
60
58
1.0
56
56
56
1
1.2
0.8
0.8
54
54
54
52
0.6
52
0.6
52
0.6
50
0.4
50
0.4
50
0.4
48
48
0.2
0.2
46
46
0.0
0
42
-0.4
40
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1
2014
2015
2016
2017
46
0.0
44
44
-0.2
48
0.2
-0.2
42
-0.4
44
-0.2
42
40 -0.4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2014
2015
2016
2017
40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2014
2015
2016
2017
2
Index
q-o-q % change
0.8
External assumptions…
f
2018 f
2016
2017
United Kingdom
1.8
1.8
1.3
Euro Area
1.8
1.7
1.8
United States
1.6
2.2
2.3
Euro-dollar exchange rate
1.11
1.06*
1.06*
Euro-sterling exchange rate
0.82
0.87*
0.87*
45
55
56
f
External GDP growth
Technical Assumptions
Brent crude (dollars per barrel)
Source: European Commission, May 2017
f: forecast value
* technical assumption of unchanged levels from those at mid-April.
3
Strong growth in H2 driving momentum into 2017…
Real GDP growth (q/q, s.a. per cent change)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
4
Central scenario is for solid GDP growth in the short-term…
14.0
forecasts
12.0
Domestic demand
Net exports
GDP
10.0
Contribution to annual growth
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
2016
2017
2018
2019
2020
2021
5
Exports strong but nearly half due to “contract manufacturing”…
cumulative change in exports (nominal) since end-2008 [4q sum]
180,000
X-goods_non pharma
160,000
X-pharma
X-contract manufacturing
140,000
X-services
X-G&S
120,000
€ millions
100,000
80,000
60,000
40,000
20,000
0
-20,000
2016Q4
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
2010Q4
2010Q3
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
2008Q4
6
Growth yielding a dividend in the labour market…
2,300
Forecast
2,200
employment ('000)
2,100
2,000
1,900
1,800
1,700
1,600
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
7
Inflationary pressures (HICP) remain contained…
2.5
Unproc. Food
Processed Food
NEIG
Energy
Core Services
Rents
All HICP
Core
forecast
2.0
1.5
Contrubution (%)
1.0
0.5
0.0
-0.5
-1.0
-1.5
average 2016 = -0.2%
average 2017 = 0.6 %
average 2018 = 1.2%
-2.0
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
8
Still running a deficit in 2017 and tax receipts behind profile…
outturn vs profile: year to end-April (€ million)
profile
outturn
total
other
VAT
income taxes
corporation tax
excise duties
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
9
Government policy to achieve balanced budget (structural) in 2018…
1.0
0.0
-1.0
per cent of GDP
-2.0
-3.0
government policy to achieve MTO in 2018
-4.0
-5.0
structural budget balance
MTO
-6.0
-7.0
2018
2017
2016
2015
2014
2013
2012
10
Public debt remains elevated…
debt interest-to-revenue ratio
20.0
shaded area shows the second and third quintiles for the EU28
green line shows the evolution of the Irish position
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
11
Short-term risks – firmly tilted to the downside, mainly external…
Positive
Negative
Hard “Brexit”
Policy uncertainty in the US (inc. tax)
Protectionism
Weaker external growth
Exchange rate re-alignments
Geopolitical factors
Global financial market conditions
“measured” GDP (distortions)
Concentrated industrial base
Loss of competitiveness
Private sector deleveraging
Supply-side constraints
External
Domestic
12
“Brexit” impact could be severe…
UK exit - impact on level of Irish GDP relative to baseline (T=2 yrs post triggering of art. 50)
0.0
T
T+1
T+2
EEA
-0.5
% deviations on the level of GDP (relative to baseline)
T+3
T+4
T+5
EFTA
T+6
T+7
T+8
T+9
T+10
WTO
-1.0
-1.5
-2.0
'soft exit' - limited barriers to
-2.5
-3.0
-3.5
bulk of the impact is after 5
'hard exit' - most favoured nation clause of
-4.0
13
In summary…
•
Economy performing well
- GDP / GNP distorted
labour market trends = best barometer at present
•
Highly uncertain short- and medium-term outlook
- “Brexit” ------- future EU-UK trading relationship?
- policy uncertainty in the US
continued growth cannot be taken for granted
•
Policy requirements
- need to remain competitive
: adjustment more difficult in monetary union
- address supply-side bottlenecks
- achieve balanced budget (MTO) in 2018
- reduce public debt
: cushion future shocks
: reduce vulnerabilities
14
Annex 1: Macroeconomic Outlook as set out in Stability Programme
Year-on-year % change
GDP
GNP
Nominal GDP
2016
5.2
9.0
3.9
2017
4.3
4.2
5.5
2018
3.7
3.5
5.0
2019
3.1
2.8
4.6
2020
2.7
2.3
4.4
2021
2.5
2.1
4.2
Personal Consumption
Govt Consumption
Investment
Exports
Imports
3.0
5.3
45.5
2.4
10.3
2.8
2.6
-17.1
5.0
-2.0
2.7
2.1
5.4
5.1
5.3
2.5
2.0
4.3
4.2
4.5
2.2
1.9
3.3
3.9
4.2
2.0
1.8
2.9
3.8
4.0
HICP
GDP Deflator
Employment
Unemployment (rate)
Contributions to growth (p.p.)
Domestic Demand
Change in Stocks
Net Exports
Underlying Domestic Demand (inc. stocks)
Underlying Net Exports
-0.2
-1.2
2.9
7.9
0.6
1.2
2.7
6.4
1.2
1.3
2.4
5.8
1.8
1.5
1.9
5.5
1.9
1.7
1.5
5.5
1.9
1.7
1.4
5.5
11.3
0.3
-6.5
2.2
2.9
-3.7
0.0
8.0
2.3
2.1
2.5
0.0
1.2
2.3
1.4
2.1
0.0
1.0
1.9
1.1
1.8
0.0
0.9
1.6
1.1
1.6
0.0
0.8
1.4
1.0
15
Annex 2: Fiscal space (as per Budget 2017) – to be updated in SES
€ bns
2018
2019
2020
2021
Gross fiscal space
1.8
3.2
3.5
3.6
Pre-commitments
0.6
0.6
0.7
0.8
Net fiscal space *
1.2
2.7
2.7
2.7
*carry-over effects impact on 2018 figure
16