Provisional figures show that GDP fell slightly last year as inter alia headwinds associated with patent-expiry in the pharma-chem sector depressed output and exports. By contrast, domestic demand stabilised and returned to growth in the second half of the year. The recovery in domestic demand helps explain the very strong labour market performance last year where employment growth outperformed expectations.
There is now growing evidence that recovery is gaining momentum. Activity is improving in most of Ireland's key export markets, which should support the exporting sectors. While patent expiry will continue to weigh on exports this year, available evidence suggests that the impact will not be as large as was the case last year. On the domestic front, the investment cycle has clearly turned, while strong employment growth, together with improving confidence, should support an increase in personal spending. Against this general background, my Department is projecting GDP to increase by 2.1 per cent this year (GNP by 2.7 per cent).
My Department expects that the pace of GDP growth will accelerate in 2015 and beyond, as the output gap closes and the pace of growth reverts to its estimated trend rate of 3.5 per cent. Employment is set to expand by around 2 per cent per annum with unemployment falling to 8 per cent by 2018.
The Government's Medium-Term Economic Strategy sets out the approach for jobs-rich economic growth over the period to the end of this decade. This involves a three pillar approach. Firstly, the Government is conscious that there remains scope for further improvements in competitiveness, including through structural reforms. These include targeted tax policy changes to stimulate activity in key sectors of the economy. The Action Plan for Jobs and Pathways to Work initiatives set out the Government's strategy for generating employment and engaging with the unemployed. In addition, the Government is working to ensure that sufficient credit is forthcoming in order to finance economic recovery. Finally, the Government recognises that sustainable public finances are a necessary condition for economic recovery. The immediate fiscal policy objective, therefore, remains the correction of the excessive deficit by next year. Thereafter, fiscal policy will be set in line with the requirement to move towards Ireland's medium-term budgetary objective, which is for a balanced budget in structural terms.
Any measures required in order to achieve the correction of the excessive deficit by next year will be announced in the Budget in October and will be based on the most up-to-date economic and fiscal data available at that time.