Dáil Éireann Debate, Tuesday - 27 March 2018
203. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he expects the economy to grow in the context of this and subsequent years, notwithstanding the potential threat of Brexit or other external factors; and if he will make a statement on the matter. [14234/18]
Amharc ar fhreagra209. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects his economic projections to remain on target throughout the course of 2018; if particular issues have emerged or are likely to emerge in this regard; and if he will make a statement on the matter. [14240/18]
Amharc ar fhreagraI propose to take Questions Nos. 203 and 209 together.
Recent economic indicators have generally been positive, indicating that the recovery is continuing in a sustainable manner.
Modified domestic demand, which adjusts for distortions in the Irish economy, is up 4.0 per cent in 2017. Growth is broad based with net exports also contributing positively to growth last year.
The strength of domestic demand is being felt in the labour market. Employment growth remains strong with an annual rate of 2.9 per cent recorded in 2017, representing the creation of over 61,000 additional jobs.
Data published in the first quarter of this year indicate that:
- Expansion in the manufacturing and services sectors continued in February with the Purchasing Managers’ Index for the sectors recording their fifty seventh and sixty seventh successive month of expansion, respectively.
- The Consumer Sentiment Index was 105.2 in February, well above its long run average.
- The seasonally adjusted monthly unemployment rate for February was 6.1 per cent, down from 7.2 per cent in February 2017. As a result, the unemployment rate has fallen by almost two thirds since its peak of 16 per cent in early-2012.
As part of Budget 2018, my Department forecast real GDP growth of 3.5 per cent this year. The labour market should benefit from this, with employment growth of 2.3 per cent (48,000 jobs) expected this year. Strong employment growth is set to further reduce the unemployment rate, to around 5 ½ per cent by the end of this year.
However, there are a number of risks at present including the UK’s decision to exit the EU. In addition, the sharp appreciation of the euro-sterling rate over the last two years is posing significant challenges, particularly for the traditional sector, the tourism sector and areas sensitive to cross-border trade.
My Department has incorporated the estimated impact of a “hard” Brexit into the macroeconomic forecasts published as part of Budget 2018. This shock is projected to reduce GDP growth by approximately ¾ of a percentage point on average per annum over the 2019-2021 period. These forecasts were endorsed by the Irish Fiscal Advisory Council (IFAC). The Department will publish updated forecasts as part of the April 2018 Stability Programme Update.
These projections were informed by Department of Finance – ESRI joint research which modelled the medium to long term impact of Brexit on Ireland. In particular, the forecasts were guided by the “WTO scenario”, whereby the UK and EU do not conclude a bilateral trade agreement and instead the UK exercises its rights under the Most Favored Nation (MFN) clause of the WTO.
The best way to mitigate risks such as Brexit is to improve the resilience of the economy. The Government will play its part by continuing to implement competitiveness oriented policies – including those that address emerging bottlenecks – and ensuring that the public finances continue to be managed in a prudent fashion.
