Following the crash of the credit-fuelled property bubble, together with the accompanying financial crisis, Ireland's economy experienced a sharp downturn, with a loss of almost 10% in real output between 2008 and 2012. Immediately following the crash, a major gap in the public finances emerged. Through implementation of a substantial adjustment, significant progress has been made in restoring financial stability, fiscal stability and economic growth. The economy and the public finances are now on a more stable footing.
Ireland's competitiveness has significantly improved in recent years. Relatively low consumer price inflation in the past five years has meant that Irish price levels have fallen considerably, relative to the euro area. For instance, annual HICP inflation in Ireland has been below that of the euro area average for every year since 2008. This trend continued into the early part of this year, with inflation in the first six months of the year coming in below the comparable rate in the euro area.
Following a major restructuring and recapitalisation of the banking system, stability in the financial sector has been restored. The Government recognises that the availability of finance is an essential prerequisite to supporting growth and employment in the economy. In this regard, it has taken a number of actions to assist in the financing of the economy through new and innovative products.
The underlying problems of the public finances are being addressed. The policy measures implemented by the Government have resulted in a decline in the deficit. This decline has been gradual and in a phased manner, consistent with the dual needs of supporting economic activity, as well as repairing the public finances. All of the interim deficit ceilings set have been met and Ireland is firmly on track to achieve a deficit of below 3% next year. This has been important in restoring Ireland's credibility. In addition, the debt-to-GDP ratio is estimated to have peaked and is now on a firm downward trajectory.
The immediate fiscal policy objective remains the achievement a deficit of less than 3% of GDP by next year, thereby correcting the excessive deficit. Thereafter, fiscal policy will be set in line with the requirement to move towards Ireland's medium-term budgetary objective, which is, a balanced budget in structural terms.