IMF Executive Board Concludes the 2016 Article IV Consultation and the Fifth Post-Program Monitoring Discussion with Ireland
IMF News, July 28, 2016
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- Published: July 28, 2016
Economic performance and outlook
- Ireland’s real GDP was reported to have grown by 7.8 percent in 2015 (previous data release, March 2016); subsequent revisions in July 2016 upgraded 2015 GDP growth to 26.3 percent, mainly due to much larger net exports contributions, while private consumption growth was revised from 3.5 to 4.5 percent.
- The GDP revisions represent a level shift largely related to relocation of multinational companies to Ireland, with limited impact on the underlying Irish economy (see Supplementary Information to the Staff Report).
- High frequency indicators suggest growth momentum continued in 2016; solid job creation reduced the unemployment rate below 8 percent.
- Inflation hovered around zero as low commodity and food prices more than offset rising cost of services, particularly housing rents.
- Taking into account negative spillovers from the U.K. vote to leave the EU, real GDP growth is projected to decline to just below 5 percent in 2016 and converge to its estimated potential (about 3 percent a year) over the medium-term.
- The output gap is expected to virtually close and the current account surplus to moderate by the end of the forecasting period.
Fiscal performance and recommendations
- General government deficit narrowed to 2.3 percent of GDP (pre-revision national accounts) in 2015, allowing Ireland to exit the Excessive Deficit Procedure.
- The deficit is projected to fall below one percent in 2016 despite some spending overruns, mainly in the health sector.
- Staff estimate that the government’s objective of reaching the medium-term objective of a structural deficit of ½ percent of GDP remains broadly within reach.
- Executive Directors’ fiscal recommendations:
- Continue public debt reduction to lessen vulnerability and rebuild countercyclical fiscal space.
- Create a “rainy day” fund over the medium term as an important buffer.
- Rebalance the tax mix away from direct taxes; widen the tax base and reduce the burden on middle-income households.
- Increase spending efficiency, particularly in health.
- Better target social transfers to improve intergenerational fairness.
- Prioritize higher capital expenditure to buttress competitiveness.
Financial sector, banking, and macroprudential policy
- Since the crisis, Ireland’s financial regulatory and supervisory frameworks have been significantly upgraded and banking sector soundness has improved, though crisis legacies persist.
- The IMF’s Financial Sector Assessment Program findings are summarized in the accompanying Financial System Stability Assessment.
- Executive Directors’ financial sector guidance:
- Maintain supervisory vigilance and careful risk management given persistent banking vulnerabilities and potential adverse spillovers from the U.K. vote.
- Continue efforts to reduce nonperforming loans and support authorities’ plans, including providing access to financial and legal advice to distressed mortgage borrowers.
- Support authorities’ intention to maintain macroprudential measures on mortgage lending and the central bank’s plan to periodically assess their effectiveness.
- Underscore the importance of policies to alleviate housing supply shortages and encourage monitoring of the commercial real estate market and the asset management sector.
Structural reforms and labor market policies
- Directors highlighted policies to support robust and inclusive medium-term growth and job creation:
- Broaden financing options for small and medium enterprises.
- Support innovation.
- Enhance labor activation policies and technical and vocational programs to reduce skills mismatches.
- Strengthen female labor force participation.
- Directors supported work to develop additional metrics that better reflect Ireland’s underlying economic activity in light of the national accounts revision.
Executive Board assessment (summary of Directors’ views)
- Welcomed Ireland’s remarkable economic rebound, improving public finances, and positive outlook.
- Noted recovery is incomplete and crisis legacies persist amid increased uncertainty, including following the U.K. vote to leave the EU.
- Urged authorities to lock in recent gains, tackle lingering crisis legacies, rebuild policy buffers, and bolster resilience through structural reforms.
Key statistics and projections (selected figures from Table 1)
- Real GDP growth (annual): 2011: 2.6; 2012: 0.2; 2013: 1.4; 2014: 5.2; 2015: 7.8; 2016 (projection): 4.9; 2017 (projection): 3.2.
- Final domestic demand (annual change): 2011: -0.1; 2012: 1.0; 2013: -1.5; 2014: 8.6; 2015: 5.3; 2016 (projection): 3.8.
- Private consumption (annual change): 2011: -0.7; 2012: -0.8; 2013: -0.3; 2014: 2.0; 2015: 3.5; 2016 (projection): 3.1; 2017 (projection): 2.2.
- Gross fixed investment (annual change): 2011: -6.6; 2012: 14.3; 2013: 28.2; 2014: 10.2; 2015: 7.3.
- Exports of goods and services (annual change): 2012: 2.5; 2013: 12.1; 2014: 13.8; 2015: 6.8.
- Imports of goods and services (annual change): 2012: 0.0; 2013: 14.7; 2014: 16.4; 2015: 7.0; 2016 (projection): 5.8.
- Real GNP (annual change): 2011: 1.6; 2012: 6.9; 2013: 5.7; 2014: 4.5; 2015: 2.8.
- Gross national saving (percent of GDP): 2011: 16.0; 2012: 17.6; 2013: 20.7; 2014: 22.9; 2015: 26.5; 2016 (projection): 26.8; 2017 (projection): 27.6.
- Gross investment (percent of GDP): 2011: 17.2; 2012: 19.1; 2013: 17.7; 2014: 19.3; 2015: 22.0; 2016 (projection): 23.0; 2017 (projection): 24.0.
- Harmonized index of consumer prices (annual average): 2011: 1.2; 2012: 1.9; 2013: 0.5; 2014: 0.3.
- Unemployment rate (percent): 2011: 13.1; 2012: 11.3; 2013: 9.5; 2014: 8.3; 2015: 7.7.
- Irish resident private sector credit (end-period, annual change): 2011: -2.9; 2012: -4.0; 2013: -4.9; 2014: -4.4.
- Annual change in ISEQ index (percent): 2011: 16.3; 2012: 30.3; 2013: 15.1; 2014: 33.5.
- House prices (annual change): 2011: -16.7; 2012: -4.5; 2013: 6.4; 2014: 6.6.
- Net lending/borrowing (percent of GDP): 2011: -12.6; 2012: -8.0; 2013: -5.7; 2014: -2.3; 2015: -0.9.
- Net lending/borrowing (excl. one-off items, percent of GDP): 2011: -8.7; 2012: -6.1; 2013: -3.9; 2014: -1.3.
- Primary balance (excl. bank support, percent of GDP): 2011: -5.2; 2012: -1.4; 2013: 0.8.
- General government gross debt (percent of GDP): 2011: 109.1; 2012: 120.2; 2013: 120.0; 2014: 107.5; 2015: 93.8; 2016 (projection): 89.0; 2017 (projection): 86.6.
- General government net debt (percent of GDP): 2011: 77.3; 2012: 86.7; 2013: 89.6; 2014: 88.1; 2015: 75.5; 2016 (projection): 72.1; 2017 (projection): 70.5.
- Balance of goods and services (percent of GDP): 2011: 18.0; 2012: 18.3; 2013: 20.9; 2014: 21.9; 2015: 21.7.
- Balance of income and current transfers (percent of GDP): 2011: -19.2; 2012: -18.7; 2013: -16.2; 2014: -14.7; 2015: -16.4; 2016 (projection): -18.1; 2017 (projection): -18.2.
- Current account (percent of GDP): 2011: -1.2.
- Population (millions): 4.7.
- GDP per capita (euros): 2011: 38,021; 2012: 38,131; 2013: 39,069; 2014: 41,011; 2015: 46,301; 2016 (projection): 49,505; 2017 (projection): 51,436.
- GDP (billions of euros): 2011: 173.9; 2012: 174.8; 2013: 179.4; 2014: 189.0; 2015: 214.6; 2016 (projection): 231.4; 2017 (projection): 242.5.
- National accounts released in July 2016 — Nominal GDP (billions of euros): 2011: 173.1; 2012: 175.8; 2013: 180.2; 2014: 193.2; 2015: 255.8.
- National accounts released in July 2016 — GDP per capita (euros): 2011: 37,830; 2012: 38,329; 2013: 39,235; 2014: 41,904; 2015: 55,187.
- Real GDP growth (in percent) in national accounts released in July 2016: 2012: -1.1; 2013: 26.3.
IMF Communications Department, July 28, 2016