Dáil Éireann Debate, Wednesday - 18 November 2015
72. Deputy Bernard J. Durkan asked the Minister for Finance to outline the extent to which he remains satisfied regarding future economic growth and the ability to avoid inflationary tendencies in the economy; and if he will make a statement on the matter. [40891/15]
Amharc ar fhreagra75. Deputy Bernard J. Durkan asked the Minister for Finance to outline the extent to which Ireland's credit rating has fluctuated over the past ten years, as determined by the international rating agencies; the extent to which improved trends continue to impact on the country's economic prospects; and if he will make a statement on the matter. [40894/15]
Amharc ar fhreagra78. Deputy Bernard J. Durkan asked the Minister for Finance to outline the extent to which the economy continues to remain competitive when compared to other competing jurisdictions within the European Union and without; and if he will make a statement on the matter. [40897/15]
Amharc ar fhreagra82. Deputy Bernard J. Durkan asked the Minister for Finance to outline the extent to which any sector of the economy tends to overheat, having regard to previous experience; if corrective action is required to be taken on an ongoing basis; and if he will make a statement on the matter. [40901/15]
Amharc ar fhreagra85. Deputy Bernard J. Durkan asked the Minister for Finance to outline the extent to which the current economic indicators remain in line with best practice; whether this is likely to generate positive economic activity over the next five years; and if he will make a statement on the matter. [40904/15]
Amharc ar fhreagraI propose to take Questions Nos. 72, 75, 78, 82 and 85 together.
In general, recent indicators have been positive, indicating that the recovery is strengthening in a more sustainable manner. The latest data show that GDP increased by 6.7 per cent year-on-year in the second quarter of this year. This comes on the back of an increase of 7.2 per cent in the first quarter. As a result, GDP per capita is now above its pre-crisis peak. In Budget 2016, published in October of this year, my Department forecast that the economy would grow by 6.2 per cent in 2015 and 4.3 per cent in 2016.
Importantly, the recovery is now being felt in the domestic economy with consumption up over 3 per cent in the first half of this year and investment up over 20 per cent. In fact, last year domestic demand made its strongest positive contribution to economic growth since the crisis began. This is very important as the domestic sectors are both jobs-rich and tax-rich. The external sector is also showing continuing signs of growth with exports increasing by almost 14 per cent in the first half of this year.
The economic recovery is also clearly evident in the labour market where we have now had twelve successive quarters of solid annual employment growth. As a result, the unemployment rate has fallen by over 6 percentage points since its peak in early 2012.
The recovery is also helping improve Ireland's credit rating. The impact of the economic and financial crisis resulted in a number of rapid downgrades to Ireland's credit rating. For example, Moody's reduced Ireland's rating from AAA to sub investment grade within 24 months. Importantly, Moody's returned Ireland to investment grade at the start of 2014 as the Government's fiscal and economic strategy began to bear fruit. 2014 also saw Standard and Poor's and Fitch increase their credit ratings to an A rating.
Over the medium term, my Department expects that the economy can grow by around 3 per cent per annum on a sustainable basis. However, achieving a sustained economic recovery cannot be taken for granted and is contingent upon a number of factors including sustainable public finances, maintaining our competitiveness position and ensuring inflationary pressures remain in check over the medium term.
Substantial progress has been made in terms of improving Ireland's competitiveness in recent years. There has been a significant improvement in Ireland's economy-wide cost competitiveness. The European Commission in its autumn forecasts estimated that relative unit labour costs in Ireland fell by 1.6 per cent annually in 2015. This is one of the largest declines across all EU Member States and compares with a 0.4 per cent fall in the EU, and increases of 1.2 per cent in the UK and 0.3 per cent in the US over the same period. Competitiveness gains have been achieved through productivity improvements. In fact, according to Commission forecasts, Ireland experienced the fastest productivity growth in the EU this year.
It is vitally important that this competitiveness is preserved and continues to support growth. We must also be cognisant that recent favourable exchange rate movements and gains from the fall in oil prices may unwind in the future. Therefore, we need to stay focused on continuing to improve Ireland's competitiveness through other channels such as wage and price restraint and productivity improvements.
For instance, relatively low consumer price inflation over the last five years has meant that Irish price levels have fallen considerably relative to our euro area peers. In fact, annual HICP inflation in Ireland has been below that of the euro area average for every year since 2008.
Inflationary pressures remain subdued with annual HICP inflation at 0.0 per cent to end-October. The main factor depressing inflation over the past year or so has been energy prices. Core inflation - which strips out energy and unprocessed food - is a better indication of underlying developments in the domestic economy and has averaged 1.2 per cent over the past year. It is anticipated that the annual rate of inflation will pick-up gradually as the domestic recovery continues, supported by quantitative easing, to rates consistent with price stability, i.e. close to but below 2 per cent, without the need for corrective action.
As well as monitoring the overall performance of the economy, my Department also monitors individual sectors on an ongoing basis. Key sectors of the economy are subject to scrutiny as part of this process and inflation is one, of many, economic indicators that is carefully analysed. My approach has been to help rebuild the economy sector-by-sector, by implementing targeted measures to support the most affected sectors. Government policy will continue to monitor for and to guard against the build-up of sectoral imbalances and to avoid over-dependence on a single sector, as was previously the case with Ireland's construction sector.
