As Ireland's EU-IMF Programme of Financial Support comes to an end this year the Government’s focus is now firmly fixed on achieving a successful and durable exit from our programme, and a full and sustainable return to the financial markets, and we are doing all we can to this end. Macroeconomic developments thus far are supportive of the projected reduction in debt and deficit in the post-programme environment. Quarterly National Accounts data for the second quarter show that real GDP increased by 0.4 per cent in the quarter. Encouragingly high frequency data suggest a continuation of the positive momentum into the third quarter. Of particular note were the tentative signs of a modest recovery in domestic demand. Personal consumption increased by 0.7 per cent in the second quarter and strong retail sales in recent months are indicative of further growth in the third quarter. We have also seen a return to growth in 'core' (excluding planes) investment, with both construction and machinery and equipment now growing.
Labour market conditions have also improved markedly over the last year, with employment having increased in each of the last four quarters. Employment was up by 1.8 per cent in year-on-year terms in the second quarter, representing an additional 33,800 jobs over the year. The improvement in labour market conditions has also been reflected in the unemployment rate, with a standardised unemployment rate falling to 13.3 per cent in September, having peaked at 15.1 per cent in February 2012.
These indicators point to a modest recovery in the Irish economy. My Department will be publishing updated forecasts for 2013 and 2014 along with the Budget on October 15th which will take account of developments in the interim and which must be independently endorsed by the Irish Fiscal Advisory Council, in line with the European regulation on common provisions for monitoring and assessing draft budgetary plans. Also of note are the forecasts published by the Central Bank yesterday, pointing to moderate growth this year, as weaker export growth drags on the headline figure, with the rate of expansion set to pick up in 2014.
On the fiscal side, we continue to meet and exceed our budget deficit targets. It should however be noted that part of our current deficit is structural; in other words, economic recovery alone will not be sufficient to correct the deficit. However, we have made significant progress in reducing the structural deficit in recent years and most of this correction has already been done.
Ireland's considerable efforts in restoring our public finances to a sound footing has not only been reflected in the deficit figures but has also had significant confidence effects. Ireland’s 10 year bond yield has fallen by over 10 percentage points since peaking in July 2011, facilitating Ireland’s return to the market for long-term financing earlier this year.
