Quarterly Bulletin Q3 2013

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8 Comment Quarterly Bulletin 03 / July 13 have to be made, Central Bank management remain of the view that this temptation should be resisted. The faster the needed fiscal adjustment is concluded, the stronger and more secure will be the platform for building the recovery in employment and income. Besides, Ireland’s deficit and debt levels remain very high and full implementation of the planned fiscal adjustment of €5.1 billion, as scheduled for 2014 and 2015, is a valuable key in maintaining the confidence of international lenders and will also help build a buffer against potential shocks, both of which are central for a successful exit from programme financing. Improving the competitiveness of the economy and recovering more of the ground lost during the boom would help to boost Ireland’s growth potential. This is especially important in circumstances where export growth, which is now slowing, has provided a significant offset to the weakness of domestic demand. While Ireland has recovered some of the competitiveness lost during the boom, as has been pointed out before, sectoral shifts in the economy away from low productivity sectors has led to an overstatement of the recorded improvement using conventional measures. Given this, further improvement is needed to restore the economy to the levels of competitiveness enjoyed at the start of the last decade. Reducing the cost base of the economy, both public and private, would help in this regard. Reflecting this, the planned reduction in the public sector pay and pensions bill serves to lower the price of delivering public services and should have a more limited impact on the provision of services, compared to a situation where equivalent savings were to be achieved through a reduction in public sector employment. Reducing the elevated cost base of the economy is beneficial to the process of recovery.
9 The Domestic Economy Overview n Annual National Accounts data for 2012 point to a significant slowdown in the Irish economy last year, with GDP growth moderating to 0.2 per cent from 2.2 per cent in the previous year. The slowdown last year was mainly due to a marked decline in the growth rate of exports. This reflected a progressive deterioration of demand conditions in most of Ireland’s main trading partners. Domestic demand also contracted but at a much slower pace than in the previous year. n n The progressive deterioration in export performance during 2012 became more acute in the first quarter of this year when exports declined at an annual rate of 4.1 per cent. Two factors are likely to have accounted for this relatively weak performance. The first was weak external demand, most notably in the euro area but also in the UK. The second was the negative impact on goods exports of patent expiry in the pharmaceutical sector which accounts for a large share of overall goods exports. Recent indicators point to a projected recovery in exports in the remainder of this year and this is expected to gather strength next year in line with a projected, but uncertain, recovery in external demand. The outturn for domestic demand was also quite weak in the first quarter of 2013. Consumer spending was particularly muted and this has motivated a downward revision in the forecast for consumption growth in 2013. The sharp annual decline of 20 per cent in investment reflects the distortionary impact of aircraft investment, which conceals an incipient recovery in other machinery and equipment expenditure and non-housing construction. In the case of housing completions, although these are down in the year to May, leading indicators point to the potential for an increase for the year as a whole. Domestic demand is expected to stabilise this year and to make a small positive contribution to overall GDP growth which is projected at 0.7 per cent for 2013. This projection represents a downward revision of about 0.5 per cent compared to the previous Bulletin. n The trend in GNP, which expanded by 1.8 per cent last year following contraction of 1.6 per cent in 2011, is not reflective of underlying conditions in the Irish economy. The gap between Irish GDP and GNP is driven by profit repatriation by multinational firms located here (See Box B). In recent years, net factor income outflows have been reduced by profit inflows from foreign owned PLCs that are domiciled in Ireland but are not engaged in any meaningful economic activity here. This has had the effect of boosting the growth rate of GNP in some years, most notably 2010 and 2012. n n Labour market conditions are showing clear signs of improvement. Following a marginal annual increase in the fourth quarter of 2012, the first for 5 years, the numbers at work increased by 20,500 year-on-year in the first quarter of this year. The number unemployed fell by 29,900 – the largest such fall since Q1 1999. The increase in employment reflected a rise in part-time work. Reflecting recent improvements, the rate of unemployment is expected to fall in 2013 due to a combination of an increase in employment and a small reduction in the size of the labour force. A return to stronger employment growth awaits a recovery in domestic demand which should begin in 2014. Nonetheless, our central projections imply a continuing high level of unemployment. The annual rate of HICP inflation averaged 2 per cent in 2012 with higher energy prices being the main contributing factor, accounting for 1.1 percentage points of total inflation. For 2013, energy price inflation is expected to be considerably weaker while domestically generated inflation should remain contained. As a consequence, inflation should weaken to 0.8 per cent in 2013. A projected pick-up in HICP inflation to about 1.1 per cent in 2014 is motivated, in the main, by technical assumptions pointing to higher oil prices next year, which are subject to a high degree of uncertainty.
Page 1: JULY 13 Q3 Central Bank Quarterly B
Page 5 and 6: Contents Section 1 Forecast Summary
Page 7 and 8: Section 1 Quarterly Bulletin 03 / J
Page 9: 7 Comment Annual National Accounts
Page 13 and 14: The Domestic Economy Quarterly Bull
Page 33 and 34: 31 An Timpeallacht Gheilleagrach Le
Page 35 and 36: 33 Financing Developments in the Ir
Page 37 and 38: Financing Developments in the Irish
Page 55 and 56: 53 Developments in the Internationa
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Developments in the International a
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71 EU-IMF Financial Assistance Prog
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EU-IMF Financial Assistance Program
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EU-IMF Financial Assistance Program
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77 Developments in EU Financial Ser
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Developments in EU Financial Servic
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Section 2 Quarterly Bulletin 03 / J
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Analysis of Recent Monetary Operati
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Section 3 Quarterly Bulletin 03 / J
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Statistical Appendix Quarterly Bull
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