Quarterly Bulletin No. 4 October 2015

The Quarterly Bulletin No. 4 2015 was published on 2 October 2015. 

Forecast Summary Table 

Comment

The recovery has become more widespread and has gained momentum. This reflects the confluence of a number of growth-supportive developments, including the employment-rich nature of the recovery, a less constrained policy environment, favourable financial conditions, the boost to purchasing power from lower energy prices, the on-going easing of the balance sheet legacies of the crisis and broadly favourable conditions in key export markets. GDP growth is forecast to be exceptionally strong this year and ease only modestly in 2016. The favourable outlook provides an opportunity to resolve the legacies stemming from still high levels of public and private sector indebtedness. Focussing policy on reducing remaining vulnerabilities and strengthening resilience is essential to minimise future risks to economic, fiscal and financial stability.

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Chapters

Domestic Economy

The outlook for GDP growth in 2015 and 2016 has been revised upwards to 5.8 per cent and 4.7 per cent, respectively, in this Bulletin. The composition of growth has become more broadly based between domestic and foreign sources. At home, consumer spending is being supported by rising employment and improving household incomes, while increasing business investment continues to make a substantial contribution to growth. The latest projections are for growth in both to be maintained around current rates. On the trade side, both exports and imports are forecast to grow quite strongly again in 2015, driven in large part by developments in the multi-national sector, with growth in both forecast to moderate in 2016. 

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Financing Developments in the Irish Economy

The year to date has seen a continued balance sheet improvement in the Irish economy.  Debt sustainability in the household and the non-financial corporation (NFC) sectors is improving as debt is repaid or restructured and the economic recovery gathers pace.  Aggregate household wealth is growing robustly increasing by 19.3 per cent in the 12-months to March 2015. Signs of improved financial conditions among corporates is evident by the high growth rates in NFC deposits and an increase in gross new lending to the core small- and medium-sized enterprises.  Nevertheless, a number of outstanding weaknesses persist such as the continuing high levels of mortgage arrears which highlights the early stage and fragile recovery for many households. 

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Developments in the Euro Area Economy

Growth for the Euro Area has continued only at a very moderate pace for the first half of 2015 despite low oil prices, a lower Euro and very accommodative monetary policy. Household spending accounted for most of the recent economic growth as investment fell unexpectedly. Financial markets have been disrupted by the ups and downs of the Greek negotiations, doubts over the economic situation in China and expectations about monetary policy changes in the US.   Overall the outlook for economic growth and inflation will be affected by these external factors and the continuation of the recovery will depend more than ever on a further expansion of domestic demand.

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Signed Articles

The Financial Crisis in Ireland and Government Revenues 

By Rónán Hickey and Diarmaid Smyth 

This paper examines trends in government revenues during and after the financial crisis. On taxation, it highlights the strong increase in income tax receipts in recent years. Relying on stable sources of revenue—rather than cyclically sensitive ones—appears desirable from a public finance perspective and reduces a key vulnerability that developed in Ireland in the mid-2000s. There has also been a sharp increase in non-tax revenues since the crisis, partly due to measures introduced by the Government to assist the financial sector. Managing the transition to lower, more normal, non-tax revenues will be a challenge. This financial support has significantly added to the public debt ratio, the high level of which remains a key vulnerability for the economy. Accordingly there would appear to be a strong case that unexpected or windfall gains from these sources be used to exclusively reduce public debt. 
This paper was awarded the 2015 Miriam Hederman O’Brien Prize by the Foundation for Fiscal Studies.

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Locational Banking Statistics in Ireland: Introducing the Enhanced Quarterly Statistics

By Dermot Coates and Aoife Moloney

This article introduces the recently expanded Locational Banking Statistics published by the Central Bank of Ireland. The enhancements to these statistics proposed by the Committee on the Global Financial System in the aftermath of the Financial Crisis are explained and an outline of key developments in these data for Ireland over the past decade is provided. The enhanced series incorporate changes required for reporting to the Bank for International Settlements whilst the new balance sheet information is supplemented with an income statement. These enhancements provide a better insight into developments across the Irish banking system and allow a more in-depth analysis of recent trends in the aggregate balance sheet and income flows of Irish-resident banking offices. Since 2005, the banking system has contracted sharply with the total external assets and liabilities of the Irish-resident banks falling by more than 50 per cent since their peak. These developments are explored at a granular counterparty and instrument level.

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Statistical Appendix

You can view the Statistical Appendix and related links here