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Ireland as a place to do business November 2010 Ireland’s fiscal adjustment remains on track Ireland is acknowledging upfront the costs of rescuing the banking sector. With a worst-case scenario of €50 billion, the cost is high but manageable. Though the debt-to-GDP ratio will reach about 110115%, it is bearable and not exceptionally out of line internationally: – US projected to reach 110% by 2015; Italy close to 120% – Greece projected to reach 130% of GDP; Belgium has had high debt burden for decades – Japan’s net liabilities are approaching 150% Ireland’s fiscal adjustment remains on track The Irish Exchequer has ample cash reserves and is fully funded through to the middle of 2011. The Government’s plan from December 2009 is working. The deficit, excluding the banking costs, is falling and is in line with projections. Both tax revenue and expenditure are on target. The economy in the first half of 2010 has performed in line with Government forecasts. In October, the IMF revised its GDP forecast for Ireland to -0.3% from -0.6% for this year and expects growth of 2.3% in 2011. Resolute action on public finances Adjustments in public finances to date July 2008 – April 2009 Budget 2010 €10.5 bn €4 bn Adjustments planned – December 2009 Budget 2011 Budget 2012 Budget 2013 Budget 2014 €3 bn €2 bn €1.5 bn €1 bn Though adjustments for 2011-2014 will be higher than previously anticipated, even in the worst-case scenario Ireland halfway through the process and has four years to complete the task. Debt servicing costs up, but not as high as in the 1980s Debt servicing as % of total revenue 30.0 25.0 20.0 15.0 10.0 5.0 0.0 1982 1987 1992 1997 2002 2007 2012(f) Exports have rebounded strongly E x p o r t s o f g o o d s a n d s e r v ic e s Annual % change 1 0 .0 7 .5 Percent 5 .0 2 .5 0 .0 -2 .5 -5 .0 Q1 Q3 07 Q1 Q3 08 Q1 Q3 09 Q1 10 S o u rc e : R e u te rs E c o W i n Ireland has critical mass in high-tech sectors Thanks to clusters and networks of multinational companies, Ireland has achieved critical mass in a number of high-tech sectors. 8 of the top 10 global medical technology companies have manufacturing in Ireland - employment in the sector on a per capita basis is the highest in Europe. 8 of the top 10 pharmaceutical companies have operations in Ireland. Many major software and hardware companies have significant operations in Ireland The cluster of internet-based companies is growing because Ireland is the location of choice. Business functions located in Ireland are shifting to higher value added activities and are cases becoming increasingly R&D-driven. The base of indigenous companies is strong Half of the medical technology companies are Irish There is a vibrant software sector exporting mainly to the UK and the US. Ireland has a natural competitive advantage in the food and drinks sector – in fact, Ireland is the largest exporter of beef in Europe and fourth largest in the world. Indigenous manufacturers are becoming increasingly sophisticated. Thanks to competitive adjustment achieved to date, Ireland is pricing itself back into international markets. Labour market is flexible – wage costs are falling Unit labour cost forecast % change 2008-2011 Greece Portugal Italy United Kingdom Poland EU-27 Euro area Germany France Spain Ireland -10.0 -5.0 0.0 5.0 10.0 Source: European Commission forecasts, May 2010 Labour market is flexible – wage costs are falling Employment and pay outlook – IBEC quarterly survey Basic pay rates in 2009 -2.4% Change to pay bill -9.8% Share of firms that cut basic pay 25% Outlook for 2010 Expected change in pay rates -1% Change to pay bill -3% Share of firms to cut basic pay 15% Outlook for 2011 Expected change in pay rates 0.2% Change to pay bill 0.3% Share of firms to increase basic pay 22% Non-pay business costs are coming down Energy price differential (%) Ireland vs EU-27 average 40 30 20 10 0 -10 -20 2007 2008 Electricity 2009 Gas Source: Eurostat Consumer prices are falling In f la t io n - H a r m o n is e d In d e x o f C o n s u m e r P r ic e s 5 4 3 Percent 2 1 0 -1 -2 -3 -4 2005 2006 Ir e la n d 2007 2008 2009 2010 E u ro area 12 S o u rc e : R e u te rs E c o W i n Ireland’s fundamental strengths remain % with tertiary education (age 25-34) 50 40 30 20 10 0 Ireland Germany France Poland UK US OECD average Source: OECD Ireland’s fundamental strengths remain Government capital investment ( % of GDP in 2009) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Ireland Netherlands France EU-27 UK Germany Source: European Commission forecasts, May 2010