|QEC: "By the end of 2010 our estimates suggest that the gross general government debt would be equivalent to 76 per cent of GDP. Allowing for the build-up of exchequer cash deposits and monies held in the National Pension Reserve Fund, the net debt figure would be 51 per cent, up 40 percentage points from just 12 per cent in 2007. However, these numbers take no account of the increase in the debt due to NAMA. Indeed, it is unclear whether these borrowings will in fact be treated off balance sheet. Suffice it to say that a price tag of €54 billion would be equivalent to 33 per cent of GDP in 2010 and would, if included, push the general government debt level close to 110 per cent of GDP in 2010 (of course, in a standard, business-type balance sheet the corresponding assets would be taken into account.)"|
Irish Economy: The Economic and Social Research Institute (ESRI) in its latest Quarterly Economic Commentary, forecasts GNP to fall by 8.7 per cent in 2009 and by 1.7 per cent in 2010. In GDP terms, the corresponding figures are -7.2 per cent for 2009 and -1.1 per cent in 2010. The Institute forecasts that growth will return in the latter part of 2010 - - H2 2010 - - although at a very modest pace. The ESRI forecasts a budget deficit (General Government Balance) of -12.9 per cent of GDP in 2009 and of -12.8 per cent in 2010, despite big cutbacks.
In 2010, the ESRI expects private consumption to fall by 2 per cent , following an expected 7 per cent fall in 2009. Investment is expected to contract by about 30 per cent in 2009 and by 15 per cent in 2010. The volume of public consumption is forecast to fall by 2 per cent in each of 2009 and 2010.
The QEC says if the Government implements the €4 billion fiscal package for 2010, the economists estimate that this will be sufficient to stabilise the General Government Deficit but will not reduce it. Its forecasts show a General Government Balance of -12.9 per cent of GDP in 2009 and of -12.8 per cent in 2010.
The General Government Debt will reach 76 per cent of GDP in 2010. This figure does not include any increase in Government liabilities as a result of the operation of the "bad bank" National Asset Management Agency (NAMA).
On employment, the economists are somewhat more optimistic now than in July and are forecasting employment to average 1.85 million in 2010, up from 1.82 million in the Summer Commentary.
The rate of unemployment will peak at close to 15 per cent .
In the General Assessment, the ESRI considers whether the question of whether savings of €4 billion is still the appropriate fiscal target for next year. It argues that it is and discuss how this might be achieved.
While tax increases will have to form part of the Budget package, the balance of adjustment should be made on current expenditure. In the context of the McCarthy report (Bord Snip Nua), the economists argue against the proposal to cut welfare payments across the board by 5 per cent . However, they suggest that a 20 per cent cut in child benefit payments be implemented. They also see a need for further cuts in public sector pay.
The ESRI economists - - Dr. Alan Barrett, Dr. Ide Kearney, Jean Goggin - - expect exports to fall in volume terms by 1.7 per cent in 2009, the corresponding figures for Germany and Japan could be in the region of 15 and 30 per cent respectively. The reason for the vastly different export performance appears to be related to the composition of exports, with Ireland’s concentration in the mainly US-owned pharmaceuticals sector proving to be somewhat recession-proof.
Given that Irish exports did not fall so dramatically during 2008/9, it is unlikely that we will see a large rebound effect as we move into 2010, despite the upturn in the global economy. Of course, were Ireland to gain competitiveness relative to elsewhere, we could see an increase in export share. However, the ESRI says there is no clear statistical evidence as yet of a widespread fall in wage rates and so that particular path may not be realised.
|QEC: "By the end of 2010 our estimates suggest that the gross general government debt would be equivalent to 76 per cent of GDP. Allowing for the build-up of exchequer cash deposits and monies held in the National Pension Reserve Fund, the net debt figure would be 51 per cent, up 40 percentage points from just 12 per cent in 2007. However, these numbers take no account of the increase in the debt due to NAMA. Indeed, it is unclear whether these borrowings will in fact be treated off balance sheet. Suffice it to say that a price tag of €54 billion would be equivalent to 33 per cent of GDP in 2010 and would, if included, push the general government debt level close to 110 per cent of GDP in 2010 (of course, in a standard, business-type balance sheet the corresponding assets would be taken into account.)" |
The latest figures on housing commencements suggest this contraction will continue throughout 2009 and into 2010. In the year ending June 2009, commencements were 12,176 on an annualised basis, while registrations were just 6,005. Based on these figures, no change was made in previous estimates for total completions of 20,000 in 2009, and 12,500 in 2010.
The ESRI is forecasting a fall of 12 per cent in the prices of new houses this year, and a further 16 per cent fall in 2010. This implies a cumulative fall of 40 per cent in new house prices relative to their February 2007 peak.
The poor performance in income tax receipts in 2009, is worse than that predicted by the anticipated rise in unemployment, according to the ESRI. It suggests that average earnings may well be lower than reflected in the official hourly wage estimates, due to reduced hours, a cut in wage rates that is not coming through in the official statistics, or a combination of both. Based on these latest figures The economists estimate that exchequer tax revenue will reach €32 billion in 2009, over €2 billion below the April Supplementary Budget target.
The economists say that despite the huge pressures on current expenditure consequent on the rapid rise in the numbers of welfare claimants this year, there is evidence that expenditure across departments has been tightly controlled. It's expected that total voted current expenditure will stay within target this year. The big increase in non-voted current expenditure is driven by the increase in interest payments on the growing debt which could reach €3 billion, just under 10 per cent of total tax revenue in 2009. Overall the ESRI estimates that the General Government Balance could widen to €21 billion by the end of 2009, equivalent to just under 13 per cent of GDP.
The ESRI says for 2010 it has implemented a stylised package of budgetary measures equivalent to €4 billion as pre-announced in the April Supplementary budget. These included an increase in taxation of €1.75 billion, a cut in current expenditure of €1.5 billion and a cut in capital expenditure of €750 million. In the absence of any detailed breakdown, the economists have included the pre-announced package as an illustrative exercise. By their estimates this package serves to stabilise the General Government Deficit at just under 13 per cent of GDP in 2010. It says it is important to point out that although this represents a stabilisation of the deficit as a percentage of GDP, it is in fact equivalent to a fall in the deficit of €500 million.