Economic Overview
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Update: 6 November 2014
We have a clear plan to guide the Economy to better times We exited the EU/IMF bailout as planned, without needing a new precautionary credit line. Now, our medium term economic plan has two connected targets: 1. To reduce the Government deficit to under 3% of GDP by 2015 and to eliminate it by 2018 2. To replace all 330,000 jobs lost during the recession with new jobs by 2020. These aims are based on 3 pillars: continued responsible management of the public finances, banking reform and creating more jobs.
The Economy has Returned to Growth GDP is projected to grow by 4.7% and GNP by 4.1% in 2014 (D/Finance projections). GNP grew by 3.3% in 2013 & 2.0% in 2012, but real GDP growth was flat due to the pharma patent cliff. GDP is the output of a region; GNP is the income of residents in a region.
Jobs are Increasing Employment has increased by 31,600 jobs in the last 12 months, and over 70,000 since the launch of the Action Plan for Jobs in 2012. Ireland had the highest annual employment growth in both the EU and the OECD in 2013. The unemployment rate is down to 11%, the lowest in 5 years, from a peak of 15.1% in Feb 2012. The number on the Live Register is below 375,000 for the first time since 2009. IDA has had three record years, with over 20,000 net new jobs in supported companies since the Government was formed. New jobs were created in companies like PayPal, Sky & Apple. Enterprise Ireland reports over 6,000 net new jobs since the Government was formed.
International Confidence has Returned On 4th November 2014, the NTMA raised â‚Ź3.75bn at a historically low rate of 2.48% for our first 15 year bond sale since 2009. A 10 year bond was sold in October for a 1.63% yield, compared to 15% yields in July 2011. The NTMA has raised â‚Ź11.75bn in the bond markets in 2014, more than its funding target. Ireland now enjoys A rating status with two of the three major ratings agencies (Fitch and Standard & Poors).
Economic Overview
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Update: 6 November 2014
Budget / Fiscal Policy The deficit was over €22bn at the start of 2011; at the end of 2015 it will be less than €5bn. Tax revenue to date in 2014 is up €2.7bn (9.4%) on 2013, & is €1bn (3.5%) ahead of target. We achieved this in 4 budgets that have not increased income tax, & maintained core social welfare rates of jobseeker’s benefit, carer’s allowance, & state pension. A €2bn consolidation in Budget 2015 was avoided because the government has restored growth to the economy. Budget 2015 exempted a further 80,000 low earners from USC, cut the lower USC rates and bands to help low earners, cut tax for middle Ireland earning between €32,000 - €70,000. Public Sector Reform Policy Public service numbers have been reduced by more than 30,000 (almost 10%) from a peak of 320,000 in 2008, to less than 290,000 in 2014. The Exchequer pay bill has decreased by €3bn from €17.5bn in 2009 to €14.1bn in 2013 (net of Pensions Related Deduction). Haddington Road will save a further €1 billion by 2016. Policy on Debt & Europe The Government achieved greater than expected savings of circa €9bn from reduced interest rates on funding from the troika, in Summer 2011. In June 2013, the extension to the maturities of our EFSF & EFSM loans was formally agreed. The changes will reduce our market refinancing requirement by €20bn from 2015-2022. €1.5bn in cash savings on the early repayment of our IMF loans is being negotiated. The Eurogroup agreed a framework for the ESM to recapitalise European banks (June 2013) including “potential retroactive application ... on a case-by-case basis and by mutual agreement.” The joint Communiqué from the Taoiseach and Chancellor Merkel (21st Oct 2012) states that “Ireland is a special case” with “unique circumstances.” Banking Policy The cost of bank recapitalizations was limited from an initial €35bn (troika programme) to €16.5bn, through junior bondholder burden-sharing and securing private capital investment. The State has generated €1.8bn by selling preference shares in Bank of Ireland (Dec 2013). Anglo Irish Bank and Irish Nationwide Building Society (IBRC) have been closed down. The promissory notes were exchanged for long-term government bonds, reducing Ireland’s
Economic Overview
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Update: 6 November 2014
borrowing need by €20 billion over the next 10 years. NAMA has already redeemed €15 billion, or 50%, of its Senior Bonds. The ECB stress tests showed the strength of the Irish banks. Both AIB and Bank of Ireland were sufficiently capitalised even under the adverse stress scenario.
Permanent TSB
showed a small capital requirement which will be fully addressed by its Capital Plan. €800m in additional credit available to Irish SMEs through the establishment of the Strategic Banking Corporation of Ireland (SBCI). Mortgage Arrears Policy The number of primary home mortgage accounts in arrears has decreased by 11.8% since June 2013. This is four consecutive quarters of decline. Over 79,000 mortgages were permanently restructured by August 2014. 1. Resolution strategies: the Central Bank has published specific, time-bound targets for the banks to propose sustainable mortgage solutions for distressed borrowers. The CBI will consider regulatory action (e.g. additional capital requirements) if necessary 2. The new Personal Insolvency Bill has been passed. The Insolvency Service of Ireland has been established and has approved its first Personal Insolvency Arrangements (PIAs). Automatic discharge from bankruptcy has been reduced to 3 years from 12 years. 3. Advice: a ‘Mortgage Arrears Information & Advisory Service’ was launched in 2012, & a website ‘keepingyourhome.ie’ was launched in June 2012. 4. The mortgage to rent scheme has over 1,000 cases being progressed. Jobs Policy The Ireland Strategic Investment Fund (ISIF) has absorbed the National Pensions Reserve Fund & has €6.8 billion in funding available for productive investment in the Irish economy. 2014 ‘Action Plan for Jobs’ contains 385 job creation measures, building on the 500 measures implemented in APJ 2012 and 2013. These include 3 new high-impact ‘Disruptive Reforms’ in entrepreneurship, FDI and manufacturing. The OECD says APJ is working. Construction 2020 is a cross-govt strategy with 75 actions aimed at tripling housing output and creating 60,000 jobs by 2020. Improved our competitiveness -- “best place in the world to do business”, Forbes Magazine The JobsPlus scheme is supporting 3,000 jobs in September 2014. The State pays €1 of every €4 of the employer’s costs, when they hire someone who is long-term unemployed.
Economic Overview
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Update: 6 November 2014