Thursday, 20 June 2019

Questions (62)

Bernard Durkan

Question:

62. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he continues to make comparisons with other economies throughout Europe, including those within and without the European Union, with a view to ensuring the maximisation of opportunities for the economy while maintaining accord with European colleagues; and if he will make a statement on the matter. [26022/19]

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Written answers (Question to Finance)

I regularly monitor the latest economic developments. My Department continually analyses and prepares briefing on short and medium-term macroeconomic trends in European and international economy. This includes informing me of the latest forecasts from the international institutions for the global economy, and for our key trading partners.

At European level, through both the ECOFIN and Eurogroup meetings, Ministers work alongside the European Commission and the European Central Bank (ECB) to take stock of the latest economic situation, including the risks and opportunities for European economies in the short to medium-term.

As published in the Stability Programme Update (SPU) 2019, my Department has forecast economic growth to moderate to a more sustainable rate of 3.9 per cent in 2019, and to continue at the broadly similar pace of 3.3 per cent for 2020. Although growth rates have moderated from 2018, they still compare very favourably to other EU, and significant non-EU, trading partners.

Growth in the Irish economy is expected to come from both modified domestic demand, which is set to increase by 4.0 per cent in 2019, and an expansion in Irish exports – which are set to grow by 5.2 per cent this year. Modified domestic demand excludes the volatile components of investment spending – giving a more accurate picture of the health of domestic economic activity.

The SPU sets out the principal economic risks facing the Irish economy (e.g. domestic overheating and capacity constraints, trade disruptions, Brexit), along with an assessment of their relative likelihood and economic impact. The balance of risk is firmly tilted to the downside, both in the short-term and over the medium-term.

Ireland’s economic data compare favourably to those of our main trading partners – with growth, unemployment, and inflation performing better than the Euro Area and EU averages - as the data in Table 1 below illustrate.

The European economy is projected to grow for the seventh year in a row in 2019, albeit moderately, with expansion forecast in all Member States. The pace of growth is expected to ease compared to the high rates of recent years – to 1.4 per cent this year and picking up slightly to 1.6 per cent in 2020. For the Euro Area, the Commission is forecasting growth of 1.2 per cent this year, strengthening slightly to 1.5 per cent in 2020.

Annual UK GDP growth slowed from 1.8 per cent in 2017 to 1.4 per cent in 2018 due to a range of factors including falling business investment and slowing external demand. In the light of Brexit, projections for 2019 and 2020 of 1.3 per cent are based on a purely technical assumption of status quo in terms of trading patterns between the EU27 and the UK. Growth in the US economy will slow but remain relatively strong at 2.4 per cent for 2019, easing further to 1.9 per cent in 2020.

In common with Ireland, unemployment continues to fall in the EU and US, with the US labour market set to tighten further as it approaches full employment. In the UK, unemployment will remain stable as employment growth slows in the context of subdued GDP figures.

The Government has taken significant action to ensure Ireland is aware of, and ready for developments in major partner countries. We have worked hard to rebalance our economy from where it was in the previous decade, before the global financial crisis. Growth in our economy today is evenly spread across a range of sectors, equipping us to better withstand the challenges ahead. The Government will continue to work to strengthen the resilience of the economy, to maximise opportunities while working in accordance with our EU partners.

Table 1

Real GDP

Inflation

Unemployment

2018

2019

2020

2018

2019

2020

2018

2019

2020

Ireland (SPU 2019 forecasts)

6.7

3.9

3.3

0.7

0.9

1.1

5.7

5.4

5.2

UK

1.4

1.3

1.3

2.5

2.0

2.1

4.0

4.1

4.2

Euro Area

1.9

1.2

1.5

1.8

1.4

1.4

8.2

7.7

7.3

EU28

2.0

1.4

1.6

1.9

1.6

1.7

6.8

6.5

6.2

US

2.9

2.4

1.9

2.4

2.0

2.0

3.9

3.8

3.7

Source: European Commission Spring 2019 forecasts and Department of Finance SPU 2019 forecasts for Ireland