Irish Economy: The International Monetary Fund (IMF) expects GDP (gross domestic product) to expand by 3¼% in 2015 but it warns that tax-avoidance related distortions have likely exaggerated the expected outcome for 2014.
The Fund in its report on its second post-bailout evaluation forecasts that after 2015, growth will fall to about 2.5% per annum.
The report says "real GDP grew by 4.9% y/y in Q1–Q3 2014, with net exports accounting for two-thirds of this expansion, and a range of other indicators confirm a strong recovery.
However, the national accounts data for exports rose notably more than customs figures, driven by contract manufacturing outside Ireland that is dominated by a few companies, and which could quickly turn. The pick up in investment and employment that began in H2 2012 as crisis uncertainties eased is starting to be supported by a gradual rise in private consumption. But reported growth in real public consumption is high, owing to longer public sector working hours."
Private domestic demand—excluding investment in aircraft and intangibles—rose by 3.1% y/y in Q1–Q3, which may better indicate the pace of domestic recovery."
Finfacts has been highlighting national accounts distortions for years.
The contract manufacturing is in effect a small number of mainly pharmaceutical multinationals using the fiction of booking overseas manufacturing as Irish to avoid tax. Dell Computer for example books the output of its Polish PC plant in Ireland.
The IMF says that with core retail sales rising 3½% y/y in the first ten months and oil prices declining substantially, consumption growth may exceed the 1–1½% pace projected in coming years, "especially if improving property and labor market conditions moderate households’ deleveraging efforts. However, a weak lending revival could hinder investment recovery, although credit supply issues may not be pressing for some time given rising enterprise earnings."
The Fund notes that the fiscal deficit is estimated at about 4% of GDP in 2014, well below the budget target of 4.8% of GDP. However, it says "polling for the governing parties has deteriorated in 2014 and widespread protests against water charges prompted the authorities to cut fees and cap future charges."
It added: "The budget targets a deficit of 2.7% of GDP, leaving a small buffer relative to the EDP (European Commission target) requirement of a deficit below 3% of GDP. Reflecting adjustment fatigue and political challenges, the budget adopted expansionary measures of ⅔% of GDP, or ½% net of earlier measures impacting in 2015 including water charges."
IMF report [pdf]
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