Key Economic indicators and key messages

**ALL FIGURES INCLDUED SHOULD BE IN THE PUBLIC DOMAIN AND WHERE POSSIBLE THE RELEVANT DOCUMENT FROM WHICH THEY CAME FROM SHOULD BE QUOTED**

Historic information/ Trends Key Macroeconomic Variable

2007 / 2008 / 2009 / 2010 / 2011 / 2012 / 2013 / 2014 / 2015
Growth
Nominal GDP (% change) / -3.6 / 1.4 / 3.1 / 4 / 4.3 / 4.6
Nominal GDP (€m) / 153,950 / 156,075 / 160,900 / 167,400 / 174,650 / 182,725
GNP (% change) / -2.1 / 0.3 / 2 / 2.5 / 2.5 / 2.6
GNP (€m)
Exports
% change / 9.4 / 6.8 / 5.7 / 5 / 4.5 / 4.1
€ m / 157,573
Labour Market
Unemployment Rate (%) / 14.4 / 13.7 / 12.7 / 11.5 / 10
Unemployment
Price Developments
HICP / 1 / 0.9 / 1.5 / 1.7 / 1.8

Comparison of Growth Forecasts

Key messages

  • Following an extremely sharp downturn, the broad consensus is that the Irish economy will return to growth this year.
  • The Department’s latest forecasts, published in the Stability Programme Update on 29 August 2011, anticipate real GDP growth of 0.8% in 2011, 2.5% in 2012 and 3% per annum over the period 2013 to 2015.
  • Growth will primarily be driven by the external sector over this period, reflecting significant competitiveness improvements and a stronger global economy.
  • Labour market conditions remain weak, and as a result the government is giving priority to job creation, and the Jobs Initiative will be a key platform in this regard
  • Ireland remains an attractive destination for foreign direct investment in high value-added sectors.

A return to growth is expected this year…

  • The pace of the economy’s contraction slowed significantly last year; real GDP declined by 1% compared to a fall of 7.6% in 2009;
  • There is now a broad consensus that the economy will return to growth this year. Notably the IMF, EU Commission and Reuters’ private sector consensus forecast all anticipate an increase in GDP in 2011;
  • The Department’s latest projections – published on 29 April - expect real GDP growth of 0.8% in 2011, 2.5% in 2012 and 3% per annum over the period 2013 to 2015 (see Table 1);
  • This represents a downward revision in 2011 and 2012 from the Budget day forecasts reflecting weaker than expected data, interest rate increases and higher oil prices;
  • Typically recovery in a small open economy begins in the external sector before filtering through to investment and finally consumer spending;
  • In line with this, growth will primarily be driven by net exports over the forecast horizon;
  • Given the impact of fiscal consolidation and the necessary unwinding of private sector imbalances, a recovery in domestic demand will take longer than normal to emerge;
  • Nevertheless, by the end of the forecast horizon activity is expected to be relatively broadly based.

Growth is being underpinned by significant competitiveness improvements…

  • The Irish economy has adapted positively to the very severe economic conditions, with major improvements in competitiveness having taken place;
  • Consumer prices have fallen; in our competitor countries consumer prices have remained on an upward path;
  • Wages and other costs have adjusted downwards; the EU Commission estimate that Irish unit labour costs declined by 6% in 2009 and 2010, compared to a 3% increase in the euro area as a whole;
  • Public sector wages have been reduced by an average of 14% (sending clear demonstration effects to the ‘traded’ sectors);
  • IBEC (Irish Business and Employers Confederation) surveys have found that nominal pay rates have fallen by an average of 5% sincemid-2008.

Exports are at an all time high…

  • The improvement in competitiveness, coupled with the global recovery, is having the desired impact on exports;
  • The IMF now expects global growth of around 4½% in the next two years;
  • Exports rose by 9.4% in 2010 and have continued to expand at a rapid pace at the start of 2011, growing by 14.1% in nominal terms in February;
  • The export performance is broad-based – the pharmaceuticals, software, financial services, business services, and food sectors are all performing well;
  • Exporters are also changing their main focus away from the traditional UK market towards new export opportunities in North and South America and Asia.
  • Exports to the US grew by 18% in the year, and to Canada by 27%. Irish exporters also increased sales to Germany by 42%;
  • Exports to Brazil, Russia, India and China rose by 12% and are expected to continue to underpin growth and new opportunities for Irish exporters;
  • Reflecting the robust export performance the current account moved into surplus in the second half of 2010 and is forecast to move into surplus this year so the country as a whole is paying its way;
  • Our key objective must be to build on this – if sustained, strong export growth will filter down into domestic demand, paving the way for a more broad-based recovery later on.

High-frequency data suggests that this trend will continue…

  • The manufacturing and services PMI indicators have remained above the 50 threshold that represents expansion in recent months;
  • The manufacturing PMI averaged 56.0 in the first quarter, reflecting strong increases in the output and export orders components;
  • The services PMI averaged 53.4 in the first quarter, again driven by new export business and improving expectations about the outlook;
  • The PMIs – and themanufacturing PMI in particular -are encouraging and suggest that positive developments in industrial production and exports will continue.

Labour market conditions remain weak…

  • The Q4 Quarterly National Household Survey (QNHS) data revealed that the Irish labour market remained very weak at the end of 2010 and highlighted the significant challenge faced in getting the country back to work;
  • The unemployment rate increased to 14.7%, while the numbers in long-term unemployment increased once again and now represent more than half of those out of work;
  • More recent data have revealed that the unemployment rate stabilised in the first quarter of 2011. Nevertheless, with recovery in the labour market lagging that in the economy as a whole, further net job losses are expected this year;
  • Recognising this challenge, the Government is giving priority to job protection, job creation and supporting unemployed people.
  • Accordingly a Jobs Initiative was announced earlier this month - it focuses our limited resources on measures that offer the greatest potential for expansion and employment creation in the domestic economy. It focuses on labour intensive areas that will generate jobs quickly.
  • Employment is expected to increase from 2012 onwards with around 100,000 net jobs created by 2015;
  • As a result, the unemployment rate is forecast to fall from 14½% this year to 10% by 2015;
  • We still have over 1.8 million people at work, vs 1 million in the mid-1990’s

Ireland continues to attract inward FDI...

  • Almost 1,000 companies – including household names such as Google, eBay and Facebook– have chosen Ireland as the hub of their European networks;
  • Eight of the top ten global medical technology companies have a manufacturing base in Ireland;
  • Eight of the top ten pharmaceutical companies have operations in Ireland;
  • Employment in the sector on a per capita basis is the highest in Europe;
  • So Ireland remains open for business and is still the destination of choice for many of the world’s leading firms;
  • IDA Ireland companies created 10,897 new jobs in 2010, resulting in net new jobs of 1,352 in 2010. A total of 126 foreign direct investments were secured last year;
  • Companies investing in Ireland for the first time rose by 20% and included the likes of Telefonica, Warner Chilcott, LinkedIn, EA, Riot Games, Genband, Aspect and FC Stone;
  • Investment in research, development and innovation came to over €500m. Over 60% of corporation tax in Ireland is paid by IDA-supported companies while exports from these firms account for over 75% of total Irish exports;
  • Throughout the last decade, Ireland invested substantially in infrastructure and achieved major improvements, particularly in the quality of road, rail, air and sea transportation;
  • Ireland is still an attractive place to do business. Ireland’s position in World competitiveness rankings:
  • 1st for corporate taxes;
  • 4th for the availability of skilled labour;
  • 4th for being open to new ideas;
  • 6th for labour productivity;
  • 7th for the availability of financial skills;
  • 7th for the flexibility and adaptability of people.

Ireland is a highly entrepreneurial society…

  • Ireland is a highly entrepreneurial society; established entrepreneurs make up 9% of Ireland’s population;
  • Ireland has a higher proportion of established entrepreneurs than Germany (4%) the UK (6.1%) and the US (8.3%) and about the same level as Finland; (9.2%) (Global Entrepreneurship Monitor Report 2008 – 2009 figures not available for Ireland);
  • A straightforward regulatory system coupled with the low financial costs attached to starting a business in Ireland have worked to encourage entrepreneurs to establish new and innovative start ups in Ireland;2,800 individuals set up a new business in Ireland every month;
  • In 2010 Ireland ranked 7th in the world (171 countries) for Ease of Doing Business and 9th in the world for Ease of Starting a Business. (World Bank Ease of Doing Business Rankings).

Ireland is an innovation led economy…

  • Ireland’s dynamic Research Development & Innovation sector is driven by an exceptional level of collaboration between industry, academia, government agencies and regulatory authorities;
  • Almost 50% of all enterprises in Ireland are engaged in innovative activity; placing Ireland 7th across the EU and considerably above the EU average of 39%. (Community Innovation Survey);
  • Ireland has trebled economy-wide R&D spend in the last decade. The Irish government is committed to increasing R&D spend across the economy to 2.1% of GDP by 2013.

Public finances trends and projections

CURRENT BUDGET / 2007 / 2008 / 2009 / 2010 / 2011 / 2012 / 2013 / 2014 / 2015
Expenditure / €m / €m / €m / €m / €m
Gross Voted Current Expenditure / 36,959 / 40,757 / 40,256 / 40,517 / 52,825 / 50,915 / 49,415 / 48,030 / 48,030
Non-Voted (Central Fund) Expenditure / 3,937 / 3,936 / 4,992 / 6,505 / 7,235 / 9,760 / 10,615 / 11,410 / 11,990
Gross Current Expenditure / 40,895 / 44,693 / 45,248 / 47,021 / 60,060 / 60,675 / 60,030 / 59,440 / 60,020
less Expenditure Receipts and Balances / 11,145 / 11,250 / 11,605 / 11,965 / 11,965
Net Current Expenditure / 48,915 / 49,425 / 48,425 / 47,475 / 48,055
Receipts
Tax Revenue / 47,249 / 40,777 / 33,043 / 31,753 / 34,900 / 37,535 / 39,850 / 42,320 / 44,290
Non-Tax Revenue / 638 / 847 / 838 / 2,669 / 1,980 / 1,105 / 870 / 885 / 770
Net Current Revenue / 47,887 / 41,624 / 33,881 / 34,421 / 36,880 / 38,640 / 40,720 / 43,205 / 45,060
CURRENT BUDGET BALANCE / 6,992 / -3,069 / -11,367 / -12,600 / -12,035 / -10,785 / -7,705 / -4,270 / -2,995
CAPITAL BUDGET
Expenditure
Gross Voted Capital / 7,650 / 8,556 / 6,907 / 5,918 / 4,675 / 4,300 / 3,900 / 3,500 / 3,500
Non-Voted Expenditure / 2,368 / 2,487 / 7,829 / 2,046 / 3,905 / 3,910 / 3,910 / 3,905 / 3,920
Gross Capital Expenditure / 10,019 / 11,043 / 14,737 / 7,963 / 8,580 / 8,210 / 7,810 / 7,405 / 7,420
less Capital Receipts / 943 / 910 / 890 / 1,180 / 335 / 320 / 320 / 320 / 320
Net Capital Expenditure / 9,076 / 10,133 / 13,847 / 6,783 / 8,245 / 7,890 / 7,490 / 7,085 / 7,100
Capital Resources / 466 / 488 / 573 / 617 / 2,115 / 1,635 / 1,790 / 1,860 / 1,760
CAPITAL BUDGET BALANCE / -8,610 / -9,645 / -13,274 / -6,165 / -6,130 / -6,255 / -5,700 / -5,225 / -5,340
EXCHEQUER BALANCE / -1,619 / -12,714 / -24,641 / -18,765 / -18,165 / -17,040 / -13,405 / -9,495 / -6,885
GENERAL GOVERNMENT BALANCE / -15,665 / -13,905 / -12,130 / -8,130 / -5,035
% of GDP / -10.00% / -8.60% / -7.20% / -4.70% / -2.80%

Expenditure Trends

Gross voted public expenditure for the period 1997 to 2011 is summarised in the table below. This figure covers all current and capital spending by Government Departments and agencies, including spending from the Social Insurance Fund, but does not include spending directly from the Central Fund such as debt-servicing costs. All figures are actual outturn figures, apart from the figure for 2011 which is in line with the Revised Estimates published in February 2011, and the 2010 figure which is the provisional outturn as published in February 2011. The year-on-year percentage increase is also shown.

year / Total (€ 000) / y-o-y % / Current (€ 000) / y-o-y % / Capital (€ 000) / y-o-y %
1997 / 18,857,510 / 8.1% / 16,851,253 / 8.0% / 2,006,257 / 8.9%
1998 / 20,512,307 / 8.8% / 17,978,231 / 6.7% / 2,534,076 / 26.3%
1999 / 22,810,786 / 11.2% / 19,737,677 / 9.8% / 3,073,109 / 21.3%
2000 / 25,924,737 / 13.7% / 21,994,293 / 11.4% / 3,930,444 / 27.9%
2001 / 31,303,197 / 20.7% / 26,327,524 / 19.7% / 4,975,673 / 26.6%
2002 / 35,808,391 / 14.4% / 30,224,518 / 14.8% / 5,583,873 / 12.2%
2003 / 38,364,387 / 7.1% / 33,003,582 / 9.2% / 5,360,805 / -4.0%
2004 / 40,750,645 / 6.2% / 35,546,468 / 7.7% / 5,204,177 / -2.9%
2005 / 45,095,031 / 10.7% / 39,212,152 / 10.3% / 5,882,879 / 13.0%
2006 / 50,016,307 / 10.9% / 43,355,262 / 10.6% / 6,661,045 / 13.2%
2007 / 56,426,010 / 12.8% / 48,606,873 / 12.1% / 7,819,137 / 17.4%
2008 / 62,395,041 / 10.6% / 53,383,957 / 9.8% / 9,011,084 / 15.2%
2009 / 63,051,261 / 1.1% / 55,718,650 / 4.4% / 7,332,611 / -18.6%
2010 / 60,522,141 / -4.0% / 54,266,425 / -2.6% / 6,255,716 / -14.7%
2011 / 57,503,410 / -5.0% / 52,826,910 / -2.7% / 4,676,500 / -25.2%