|The ESRI says: "At the time of writing it is unclear how much of this additional capital will be raised from private investors. On the assumption that the state is required to provide all of the funds necessary to recapitalise AIB and EBS, this would increase the gross cost of the bank rescue to €53 billion or 33% of GDP."
Irish Economy 2011: The ESRI (Economic and Social
Research Institute) says in its Quarterly Economic Commentary, Winter
2010, published today, that rates of growth in 2011and 2012 will be sluggish,
while net emigration in 2009/2012 will rise to 135,000 people.
The institute sees GDP (gross domestic product) growing by 1½%
in real terms in 2011 and by 2¼% in 2012. The corresponding figures for GNP
(gross national product, lower than GDP by about 20%, mainly because of an
adjustment for profits made by foreign firms) are ¼% in 2011 and 1 ½% in 2012.
Following the pattern of 2010, the growth which is envisaged for 2011 and 2012
is made up of a strong export performance together with further contractions in
Exports are forecast to grow by 6% in 2011 and by
5% in 2012. The economists, Prof. Alan Barrett, Dr Ide Kearney, Thomas Conefrey
and Cormac O'Sullivan, say that by contrast, consumption is expected to fall by
¾% in 2011 and by a further ½% in 2012. On-going uncertainty with respect to job
stability, wages and taxation are likely to act against any rebound in
consumption spending over the forecast horizon.
Government purchases of goods and services and
public investment are expected to continue shrinking in both 2011 and 2012. The
banking crisis as being a key factor in the continued depressed level of both
consumption and investment through an absence of affordable credit.
The institute says while its forecasts
envisage positive growth in both GNP and GDP for the first time since 2007,
the rates of growth are still slow. For 2011, it sees the growth in GNP and GDP
being accompanied by continued employment falls as output growth is achieved
through productivity growth. Employment is expected to average 1.83m in 2011,
down 1¼% on the 2010 number. Employment growth in 2012 is expected to be at
just 5,000 - - tiny relative to the labour force of over 2m.
The rate of unemployment is expected to average
13 ½% in 2011 and 13% in 2012 while the net outflow of people between April 2010
and April 2012 is forecast to be 100,000. When combined with the outflow which
was recorded for the year ending April 2010, this would imply a net outflow of
135,000 between 2009 and 2012. The highest rate of net outflow in the 1980s
occurred in 1989 when the rate reached 44,000. Hence, the forecast for an
average annual net outflow of 50,000 between April 2010 and April 2012 is high
in historic terms, albeit against a larger population base.
The ESRI says Consumer Price Index (CPI) will
average 2% in 2011 and 1 ½% in 2012. For Harmonised Index of Consumer Prices (HICP),
it expects 1% in both 2011 and 2012. Wages are expected to fall by 1% in 2011
and for them to remain constant next year.
Looking at the housing market, the ESRI say the contraction
continued in 2010. On an annualised basis, planning permissions for houses and
apartments stood at 20,493 in 2010 Q3, 58.5% lower than in 2009 Q3. Completions
are down 47.5% and registrations are down 50% on the same basis. The ESRI
estimates that house completions reached 14,500 by the end of 2010, which is an
increase on our previous estimate. Activity is expected to remain weak in 2011
and 2012, with 10,000 completions forecast for each of those years.
The institute says the outlook for OECD
output growth in 2011 has been revised downward from 2.8% to 2.3%. The evidence
for a protracted recovery in America, greater austerity in some European
economies and the need for household deleveraging across the developed world are
expected to depress economic activity throughout the year. With economic growth
expected to remain robust in emerging economies, the pattern of the global
recovery looks likely to become more unequal in 2011. In 2012, a return to more
robust growth is expected in America and Europe, resulting in OECD output growth
|The strong pick up in exports in 2010 has been largely concentrated in exports of services, in particular computer services and business services. In value terms, growth in non-tourism services averaged 8.8% in the year ended 2010 Q3, while growth in merchandise exports was just 2%. In volume terms merchandise exports grew slightly faster at 2.7%, reflecting the fall in the export price deflator. This matches the fall in the wholesale price index for manufacturing of 0.5% in the year ended 2010 Q3.
The performance of Irish exports remains strong
as the recovery in the global economy continues, and this trend is set to
continue on the basis of the growth forecasts for 2011 and 2012. THe ESRI says,
crucially, future export potential depends on the fortunes of our main trading
partners in America, Britain and the Eurozone.
In America, consumer demand is expected to record
weak growth due to the ongoing problems of high unemployment and high household
debt, but early indicators for 2011 suggest a brighter outlook than was
envisaged in mid 2010. In Britain, consumption remained robust throughout the
recession, but with government austerity measures set to increase in 2011, the
prospects for significant growth in consumption over the forecast period is
unlikely. In Europe, which accounted for nearly 43% of total Irish exports in
the first three quarters of 2010, demand has grown strongly as the core
economies begin to restock, but recovery is being hampered by continuing
difficulties in the financial markets. The Institute says if considerable steps
are taken in 2011 and 2012 to address these issues, the European market could
experience a better balanced and more sustainable recovery.
|Credit Institutions’ borrowing from the Eurosystem, which had peaked in June 2009 at over €130bn, fell back gradually during the second half of 2009 to stand at around €83bn by the end of March 2010, reflecting the gradual normalisation of interbank markets and the fall in interbank lending rates. The sovereign debt crisis in Greece which escalated during April and May this year sparked renewed tensions in euro area bank funding markets with the result that the ECB announced the establishment of the Securities Markets Programme (SMP) as well as the continuation of its three-month and six-month longer-term refinancing operations. |
The economists say the first point that should be
addressed with relation to the EU-IMF bailout agreement is how the
forecasts contained here compare to those contained in Budget 2011. They says:
"Our forecasts allow us to assess whether we think the
outcomes for 2011 and 2012 that were envisaged in Budget 2011 are likely to be
met. This comparison suggests that there may be slippage.
Looking firstly at the GDP forecasts, Budget
2011 contained forecast growth rates of 0.3%, 1.7% and 3.2% for the years 2010,
2011 and 2012 respectively. Our forecasts are for GDP growth rates of ¼% in 2010
followed by 1½% in 2011 and 2¼% in 2012.
Budget 2011 forecast a GDP level of
€168 billion in 2012; based on
our forecasts, we expect the level to be €165 billion, a difference of 2%.
Partly as a result of our lower forecasts for GDP growth, the debt to GDP ratio
that emerges from our forecasts is higher than that in Budget 2011. We
forecast that the debt ratio will be 104.5% of GDP in 2012 while the forecast
figure in Budget 2011
Given the uncertainty which surrounds all
forecasts, we would not place too great an emphasis on the difference. Instead,
we would see it as a reminder of the on-going challenges which the country faces
in restoring the public finances to a sustainable path. In that context and as
discussed above, tax revenues seem to have stabilised during 2010.
Under our forecasts, the deficit is below 10%
of GDP in 2011 (9½.%), an important psychological threshold. It falls to 7¾% in
2012 so the trajectory is in line with achieving a 3% deficit by 2015/2016. We
should also note that under our forecasts, the balance of payments surplus
exceeds 2% of GNP in 2012. As this points to a paying down of external debt by
the public and private sectors combined, it can be viewed as a positive sign for
2011 was the first budget to be delivered as part of the National
Recovery Plan 2011 to 2014 and under the terms of the EU/IMF bailout.
The on-going determination of the Government to restore the public
finances to a sustainable path is, of course, correct. In our view, the
extent of income tax increases was one negative feature of the budget,
especially when taken in the context of a failure to implement a tax on
primary residential properties. The need to broaden the tax base has
been a recurring theme in work undertaken by the ESRI. We expect that a
property tax will form part of future elements in on-going programme of
adjustment, as indicated in the recovery plan.
Quarterly Economic Commentary, Winter 2010 Prof. Alan
Barrett, Dr Ide Kearney, Thomas Conefrey and Cormac O'Sullivan (ESRI)
The ESRI's summary of some of the
main findings of the analysis include the following:
The forecasts in this Commentary
see GDP growing by 1 ½% in real terms in 2011 and by 2 ¼% in 2012. The
corresponding figures for GNP are ¼% in 2011 and 1 ½% in 2012.
Exports are forecast to grow by
6% in 2011 and by 5% in 2012. By contrast, consumption is expected to fall
by ¾% in 2011 and by a further ½% in 2012. On-going uncertainty with respect
to job stability, wages and taxation are likely to act against any rebound
in consumption spending over the forecast horizon.
We see the banking crisis as
being a key factor in the continued depressed level of both consumption and
investment through an absence of affordable credit.
Our GDP and GNP growth forecasts
are lower than the corresponding forecasts which underpinned Budget 2011. As
a result, we see the ratio of general government debt to GDP reaching 104.5%
in 2012, as compared to 102% which is the forecast figure in Budget 2011.
Given the uncertainties surrounding all forecasts, we would not place too
great an emphasis on the difference. Instead, we take it as being an
on-going indicator of the challenges which are faced in restoring the public
finances to a sustainable path. We expect the general government deficit to
be 9.6% of GDP in 2011 and 7.8% in 2012.
While our forecasts envisage
positive growth in both GNP and GDP for the first time since 2007, the rates
of growth are still slow. For 2011, we see the growth in GNP and GDP being
accompanied by continued employment falls as output growth is achieved
through productivity growth. Employment is expected to average 1.83m in
2011, down 1 ¼% on the 2010 number. We do expect employment growth in 2012
but at just 5,000, this is tiny relative to the labour force.
The rate of unemployment is
expected to average 13 ½% in 2011 and 13% in 2012. Net outward migration is
forecast to be 100,000 over the two year period April 2010 to April 2012.
The highest rate of net outflow in the 1980s occurred in 1989 when the rate
reached 44,000. Hence, our forecast for an average annual net outflow of
50,000 is high in historic terms, albeit against a larger population base.
In our General Assessment we
discuss how our forecasts compare to those in Budget 2011. We also make a
brief comment on Budget 2011 in which we express some disappointment that
the tax measures were so heavily focused on income as opposed to the
implementation of taxes or charges that might be expected to impact less on
economic activity such as property taxes. We note the on-going concerns
surrounding the debt crisis in the eurozone and how this situation gives
rise to uncertainty in the context of forecasting.
This Quarterly Economic Commentary
includes the following Research Bulletin articles:
"A Good News Story About Irish Health
Care", Layte, Richard, ESRI Research Bulletin No.
"On International Equity Weights and
National Decision Making on Climate Change," Anthoff,
David, Tol, Richard S J, ESRI Research Bulletin No. 2010/04/02.
"Progression in Higher Education: The Value of
Multi-Variate Analysis," McCoy, Selina, Byrne, Delma (National University of
Ireland, Maynooth), ESRI Research Bulletin No. 2010/04/03.
"Cultural Differences in Parenting
Practices," Murray, Aisling, ESRI Research Bulletin
"Public and Private Utilisation of
In-Patient Beds in Irish Acute Public Hospitals,"
O'Reilly, Jacqueline, Wiley, Miriam M, ESRI Research Bulletin No. 2010/04/05.
The articles are available on the