Dáil Éireann Debate, Wednesday - 20 November 2013
66. Deputy Bernard J. Durkan asked the Minister for Finance the position as indicated to his European colleagues in the context of Ireland’s exit from the bailout programme; the extent to which he is satisfied that the decision will assist towards economic recovery; and if he will make a statement on the matter. [49791/13]
View answer67. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which the economic fundamentals have improved in this economy in the past three years; and if he will make a statement on the matter. [49792/13]
View answer72. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects economic growth to improve in 2014; the factors within the control of this country which are likely to be most effective in this context; and if he will make a statement on the matter. [49797/13]
View answerI propose to take Questions Nos. 66, 67 and 72 together.
As the Deputy is aware, the Government decided on 14 November that Ireland is now in the best position to exit the EU-IMF programme of financial assistance on December 15 without the need to prearrange a new precautionary credit line.
The Government’s assessment is that the best option for Ireland is to exit the programme as planned in December without a prearranged backstop for a number of reasons, including prevailing market conditions, progress in improving the public finances, and the new European fiscal governance architecture.
Regarding economic performance, the economy recorded a second successive year of growth in 2012 having contracted for three successive years from 2008 to 2010. This recovery has been driven by strong export growth over the period, reflecting, in part, the considerable competitiveness gains achieved in the last number of years. Inflation in Ireland has been below or on par with that of the euro area average for every month since March 2008 and the latest European Commission forecasts suggests a 22 per cent improvement in unit labour cost relative to the euro area average between 2008 and 2014.
Domestic activity contracted sharply following the collapse of the property market, with domestic demand decreasing significantly between 2008 and 2012. This has had severe ramifications for the labour market with the unemployment rate increasing by around 10 percentage points over this period.
However, recent indications have been that domestic demand is stabilising and is moving on to a modest recovery path. Personal consumption was up by 0.7 per cent in the second quarter and healthy retail sales in the third quarter, along with improving consumer sentiment, bode well for the second half of the year. We have also seen a return to growth in ‘core’ (excluding planes) investment, with both construction and machinery and equipment growing in recent quarters.
Perhaps most pertinently, employment has now increased in each of the last four quarters, with employment up 1.8 per cent year-on-year in the second quarter. In line with this, the standardised unemployment rate stood at 13.2 per cent in October, having fallen from a peak of 15.1 per cent early last year. While I would stress that more must be done to tackle the still high level of unemployment, it is clear that we are now moving in the right direction.
Growth of 0.2 per cent is forecast this year, with patent expiry in the pharmaceutical sector impacting on output in Ireland. Current forecasts for 2014 are for an acceleration in the pace of economic growth, with GDP forecast to increase by 2.0 per cent. The contribution from domestic demand is expected to strengthen, which is encouraging. On the assumption of a pick-up in trading partner growth, exports are set to increase once again, although the potential for further reductions in pharma-chem output presents a notable risk to this projection.
Through the fiscal adjustment measures that the Government has implemented since 2011, stability has been restored to the public finances. Having met and exceeded all of our deficit targets to date, we remain on track to bring our deficit below 3 per cent of GDP in 2015.
Irish sovereign yields are now at about 3½ per cent, a fraction of the highs reached in summer 2011. This is due in no small part to successful re-negotiation of the terms of the EU-IMF programme and the promissory note deal, as well as the overall confidence in the future of economic and monetary union. However, the improvement in yields is also down to the Government’s fiscal strategy which has seen the consistent delivery of deficit reduction. A reduced cost of borrowing for the Government reduces the interest bill which has to be paid by the taxpayer, and, over the long term serves to keep economy-wide interest rates low in order to stimulate investment. On foot on this progress and prudent debt management policies, Ireland’s debt ratio is now expected to decline in 2014 and remain on a downward trajectory thereafter. Budget 2014 also forecasts a modest primary surplus next year. This means that, excluding debt service costs, revenues are sufficient to meet expenditures.
The process of rebuilding the economy takes time. The approach the Government is adopting is designed to implement the necessary changes in a manner that positions the economy to grow into the future and instils confidence in Ireland at home and abroad.
