Quarterly Bulletin No.2 2019

Read the Forecast Summary Table.

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Read the full Comment for Quarterly Bulletin No.2 2019.

Léigh tráchtaireacht ar an Timpeallacht Gheilleagrach.

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While the underlying outlook for growth in the Irish economy remains positive, it is subject to heightened levels of risk and uncertainty related to the future path of the Brexit process. The central projection continues to assume that a disorderly, no deal Brexit scenario can be avoided and that trading relationships between Ireland and the UK remain unchanged over the forecast horizon. However, the risk of a disorderly, no deal Brexit cannot be fully ruled out.  

Read this chapter in full: Irish Economy.

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This chapter presents a summary of the latest financial trends in Ireland. The Financial Statistics Summary Table and accompanying graphs provide key insights for understanding important trends, utilising the latest data for the household sector, small and medium sized enterprises, the financial sector and the public finances. Links to the relevant source data are provided below each chart.

Read the chapter: Overview of Financial developments in the Irish Economy.

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Between September 2014 and the end of 2018, under the ECB’s Asset Purchase Programme (APP), the Eurosystem purchased over €2.5 trillion worth of securities. By the end of December 2018, over €30bn of Irish government bonds, a significant portion of the Irish government bond market, had been purchased under the programme.

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China has experienced a number of episodes of capital flow and exchange rate volatility over the past 3 years. Meanwhile, the current account surplus has declined markedly together with net saving, while the real effective exchange rate appreciated.

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Global economic activity has weakened and the growth outlook is less favourable than previously anticipated. Vulnerabilities stemming from emerging market economies and the weakening European economy, combined with a slowdown in trade and global manufacturing, Brexit uncertainty and risks in financial markets, may adversely affect confidence and investment, undermining global economic activity. In light of this assessment, the OECD revised down its projections in March, projecting global GDP to grow by 3.3 per cent in 2019 and 3.4 per cent in 2020.

Read in full: The International Economic Outlook.

Over the past decade, a small number of very large “superstar” US multinational enterprises (MNEs) have accumulated considerable savings. Retained offshore earnings, in particular, amounted to over USD 2 trillion by the end of 2017 and reflect profits earned by US MNEs’ foreign subsidiaries from previous years. Up until recently, US MNEs had been reluctant to repatriate these foreign profits because of the relatively high corporate tax rate maintained by the US. In this box, we document how the process of profit repatriation affected the external statistics of the United States and Ireland. Although the magnitude of the financial flows was sizeable, the extent to which they affected real economic activity is likely to be very limited.

Read in full: US profit repatriations and Ireland's balance of payments statistics.

The marked improvement in the Irish labour market since 2012 offers the clearest evidence of the recovery and growth in the economy since the financial crisis. Projections in this Bulletin forecast average annual employment growth of 1.9 per cent to 2020 with the macroeconomic projections underlying Budget 2019 forecasting annual growth rates of 1.6 per cent from 2021 to 2023. With unemployment already very low, this pace of employment growth requires a readily available supply of labour if the risk of overheating is to be contained. This Box looks at one aspect of labour supply, inward migration, and examines the extent to which it has boosted labour force growth, as well as its impact on the labour market. 

Read in full: Inward migration and the Irish labour market.

At the current level of unemployment, it is clear that the labour market is now closer to a position of full employment than at any stage since 2009. Despite this and considering the rapid growth in output since 2013, wages have been relatively slow to pick up until recently. One reason for this slow pickup in wages could be that the standard unemployment rate is not adequately capturing the degree of spare capacity in the labour market. This box uses the “non-employment index” to estimate the level of spare capacity in the labour market.

Read in full: An Update on Non-Employment and Labour Market Slack.

The significant role that corporation tax (CT) inflows have played in supporting Irish revenue growth in recent years - and the risks associated with this reliance - are well documented. The tax head has more than doubled since end-2014, with receipts surpassing €10 billion last year, and has consistently performed ahead of expectations.  CT has driven 40 per cent of total tax revenue growth over the four-year period from 2015 to 2018, despite it being a considerably smaller tax base in nominal terms than both income tax and VAT. In 2018, meanwhile, CT represented 19 per cent of total tax revenue, up from 16 per cent a year earlier and just 11 per cent five years earlier.

Read in full: The role of Corporation Tax in driving Irish Tax Growth, 2015-2018.

There are signs that wider economic developments are leading to a recovery in credit flows and a slowdown in the deleveraging seen in recent years. Credit from the Irish banking sector has become positive for both mortgage and consumer lending, while new lending to SMEs remains strong. The most recent data indicate that mortgage-lending growth may be stabilising but lending for consumer purposes continues to increase. 

Read in full: Credit Developments in the Irish Economy.