IMF Executive Board Concludes 2022 Article IV Consultation with Ireland
IMF News, July 7, 2022
Source details
- Canonical URL
- IMF Executive Board Concludes 2022 Article IV Consultation with Ireland
Other formats
Bibliographic details
- Published: July 7, 2022
Economic performance and near-term outlook
- Real GDP grew 13½ percent in 2021, driven largely by multinational enterprises (MNEs), surpassing its pre-pandemic trend.
- GNI*, which excludes most of MNEs activities, recovered from its 2.2 percent decline in 2020, growing by an estimated 6 percent in 2021.
- The fiscal deficit was 1.9 percent of GDP in 2021, surprising on the upside due to buoyant tax revenues and somewhat lower-than-budgeted spending.
- Headline inflation registered an annual rate of 2.4 percent.
- The strong economic performance continued through Q1 2022, registering 11 precent y-o-y GDP growth.
- By May 2022:
- Unemployment rate fell to 4.7 percent.
- Job vacancy rate stood at an all-time high.
- Growth projection: Real GDP is projected to slow from 13.5 percent in 2021 to 7.5 percent in 2022, reflecting an envisaged deceleration of the IT and pharmaceutical sectors and indirect impacts from the war in Ukraine.
Financial sector resilience and emerging risks
- The financial sector weathered the pandemic well due to high capital buffers and effective policy support.
- The impact of the pandemic on borrowers’ financial position has started to dissipate, but uncertainty remains.
- Retail bank profitability remains lower than peers; two retail banks are exiting while new non-bank lenders are entering the market.
- Non-bank lenders have tripled their share of new mortgage lending over last two years (to 13 percent in 2021).
- Ireland hosts a large market-based finance sector, prompting the need to enhance risk analysis and reinforce regulation in collaboration with international partners.
- FSAP findings were welcomed; Directors endorsed its main recommendations and noted considerable strengthening of financial sector oversight since the last FSAP.
- Directors recommended:
- Strengthening supervisory capacity to keep pace with a large, complex, and globally interconnected financial sector.
- Developing capacity in new areas such as climate, non-bank lending, and fintech.
- Addressing data gaps in the non-bank sector and elucidating linkages to the domestic economy.
- Extending the macroprudential framework to cover risks from the growing non-bank sector.
- Continuing steps to enhance the crisis management regime and strengthen the AML/CFT framework.
Fiscal policy, sustainability, and public investment
- Directors encouraged efforts to enhance fiscal sustainability and recommended maintaining two-way fiscal flexibility guided by growth and inflation developments.
- They welcomed the swift response to mitigate high energy prices and considered any additional measures should be carefully targeted to the most vulnerable.
- Over the medium term, Directors recommended fiscal policy support for growth-enhancing green investment while keeping public debt on a downward trend to rebuild buffers.
- Directors supported efforts to continue to enhance public investment quality to ensure value for money.
- Given long-term demographic trends and uncertainty regarding corporate income tax revenues, Directors saw merit in bolstering pension sustainability and further broadening the tax base.
Structural challenges and recommended reforms
- Several pre-pandemic challenges remain: housing shortages, infrastructure gaps, social and green investment gaps, and the need to strengthen MNEs’ inward linkages to broaden growth and make it more inclusive.
- Directors recommended:
- Advancing structural reforms to increase inward linkages of multi-national enterprises and mitigate the impact of Brexit on SMEs.
- Strengthening housing supply policies to improve affordability.
- Redoubling efforts to support labor upskilling and to enhance the provision of affordable childcare.
- Specifying and implementing well-phased green measures to achieve ambitious quantitative targets.
Key macroeconomic and fiscal indicators (selected figures from table)
- Real GDP (annual percent change): 2018: 9.0; 2019: 4.9; 2020: 5.9; 2021: 13.5; 2022 (proj): 7.5; 2023: 5.0; 2024: 4.1; 2025: 3.1; 2026: 3.0; 2027: (table continues)
- Domestic demand (annual percent change): 2018: -2.8; 2019: 43.5; 2020: -14.8; 2021: -16.8; 2022: 3.8; 2023: 4.7; 2024: 4.5; 2025: 4.2; 2026: 4.0; 2027: 3.9
- Public consumption (annual percent change): 2018: 4.8; 2019: 7.1; 2020: 10.9; 2021: 5.3; 2022: -1.3; 2023: 2.0; 2024: 2.5; 2025: 2.9
- Private consumption (annual percent change): 2018: 3.3; 2019: -10.4; 2020: 5.7; 2021: 3.5
- Gross fixed capital formation (annual percent change): 2018: -8.8; 2019: 99.5; 2020: -23.0; 2021: -37.6; 2022: 7.0; 2023: 6.6; 2024: 6.1; 2025: 5.5
- Exports of goods and services (annual percent change): 2018: 11.5; 2019: 10.4; 2020: 9.5; 2021: 16.6; 2022: 8.5; 2023: 6.0
- Imports of goods and services (annual percent change): 2018: 41.7; 2019: -7.4; 2020: -3.7; 2021: 6.3; 2022: 5.1
- Output gap: 2018: 1.3; 2019: 0.3; 2020: -2.3; 2021: 0.8; 2022: 0.5; 2023: 0.0
- Inflation (HICP): 2018: 0.7; 2019: 0.9; 2020: -0.5; 2021: (table entries continue)
- Employment (% changes of level, ILO definition): 2018: 2.8; 2019: -2.7
- Unemployment rate (percent): 2018: 5.8; 2019: 6.2
- General government revenue (percent of GDP): 2018: 25.5; 2019: 24.7; 2020: 22.2; 2021: 23.0; 2022: 22.5; 2023: 22.1; 2024: 21.9
- General government expenditure (percent of GDP): 2018: 25.3; 2019: 24.2; 2020: 27.3; 2021: 24.9; 2022: 22.7; 2023: 21.5; 2024: 21.3; 2025: 21.2; 2026: 21.0
- Overall balance (percent of GDP): 2018: 0.1; 2019: -5.1; 2020: -1.9; 2021: -0.2
- Primary balance (percent of GDP): 2018: -4.1
- Structural balance (percent of potential GDP): 2018: -0.3
- General government gross debt (percent of GDP): 2018: 63.1; 2019: 57.2; 2020: 58.4; 2021: 56.0; 2022: 49.1; 2023: 44.8; 2024: 41.6; 2025: 39.0; 2026: 36.4; 2027: 33.4
- General government gross debt (percent of GNI*): 2018: 104.1; 2019: 94.6; 2020: 104.7; 2021: 107.3; 2022: 96.7; 2023: 88.9; 2024: 83.2; 2025: 78.0; 2026: 72.9; 2027: 66.9
- Trade balance (goods, percent of GDP): 2018: 33.6; 2019: 33.1; 2020: 38.9; 2021: 41.0; 2022: 44.9; 2023: 43.4; 2024: 41.3; 2025: 39.7; 2026: 38.2; 2027: 36.7
- Current account balance (percent of GDP): 2018: -19.9; 2019: 13.9; 2020: 12.3; 2021: 10.1; 2022: 8.0
- Gross external debt (excl. IFSC, percent of GDP) 2/: 2018: 265.7; 2019: 292.9; 2020: 302.1; 2021: 255.0; 2022: 220.9; 2023: 201.2; 2024: 188.6; 2025: 180.5; 2026: 174.3; 2027: 169.4
- Gross national savings (percent of GDP): 2018: 33.5; 2019: 34.8; 2020: 38.1; 2021: 34.7; 2022: 32.7; 2023: 32.2; 2024: 31.9; 2025: 31.5; 2026: 32.3
- Gross capital formation (percent of GDP): 2018: 28.6; 2019: 54.7; 2020: 40.9; 2021: 22.4; 2022: 22.6; 2023: 23.1; 2024: 23.9; 2025: 24.6
- Memorandum items:
- Nominal GDP (€ billions): 2018: 326.0; 2019: 356.5; 2020: 372.9; 2021: 421.5; 2022: 479.9; 2023: 522.1; 2024: 556.1; 2025: 584.6; 2026: 614.8; 2027: 646.2
- Nominal GNI* (€ billions): 2018: 197.8; 2019: 215.6; 2020: 208.2; 2021: 219.8; 2022: 243.5; 2023: 263.4; 2024: 278.1; 2025: 292.1; 2026: 307.0; 2027: 322.5
- Real GNI* (growth rate) 3/: 2018: 4.6; 2019: 4.4; 2020: 3.2; 2021: (table entry)
Executive Board assessment highlights
- Directors commended careful withdrawal of pandemic support and welcomed the exceptionally strong economic recovery.
- Uncertainty is high due to indirect impacts from the war in Ukraine (rising inflation and weakening global demand).
- Directors encouraged:
- Enhancing fiscal sustainability.
- Further strengthening financial sector resilience.
- Advancing structural reforms to address bottlenecks to growth.
- Directors recommended any additional measures to mitigate energy-price effects be carefully targeted to the most vulnerable and endorsed continuing to prioritize green investment while reducing public debt over the medium term.
Source: Press Release No. 22/249, July 7, 2022, IMF.