Transcript Document

Presentation to Joint Oireachtas Committee on Finance,
Public Expenditure and Reform
Economic Outlook underpinning Budget 2014
8 October 2013
SPU Forecasts
2012
2013
2014
GDP
0.9
1.3
2.4
Consumption
-0.9
0.2
1.1
Government
-3.7
-2.1
-2.0
Investment
1.2
3.7
8.2
Exports
2.9
2.3
3.0
Imports
0.3
1.8
2.3
Employment
-0.6
0.4
1.1
Unemployment
14.7
14.0
13.3
HICP
2.0
1.2
1.8
3
Developments since then
4
National Accounts outturn surprised on the downside
2012
2013
y-o-y % change
SPU
Outturn
Q1
Q2
GDP
0.9
0.2
-1.0
-1.2
Consumption
-0.9
-0.3
-1.1
-1.3
Government
-3.7
-3.7
-1.8
-1.7
Investment
1.2
-1.0
-19.6
1.0
Exports
2.9
1.6
-4.1
1.0
Imports
0.3
0.0
-4.0
2.6
5
External developments
6
External assumptions
€100
Currencies and oil
€95
€90
Technical assumptions:
Currencies assumed unchanged from 10
day MA; Oil prices assumed to move inline with futures prices
£0.87
£0.85
GBP/EUR (RHS)
Brent Crude (€) (LHS)
€85
£0.89
£0.83
£0.81
€80
£0.79
€75
£0.77
€70
£0.75
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
SPU forecast
Jan-13
Apr-13
Jul-13
Oct-13
Current outlook
2013
2014
2013
2014
Euro/GBP
0.85
0.85
0.85
0.84
Euro/US Dollar
1.31
1.31
1.32
1.34
80
76
82
78
Brent Crude (€ per barrel)
7
US
8
UK
euro area
2013q2
2013q1
2012q4
2012q3
2012q2
2012q1
2013q2
2013q1
2012q4
2012q3
2012q2
2012q1
2013q2
2013q1
2012q4
2012q3
2012q2
2012q1
q-o-q % change
Q2 export market growth better than expected
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
And conjunctional indicators are positive
65
PMI Data
60
above 50 = expansion
55
50
45
UK Composite
Euro area composite
40
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
9
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Weakness in exports in Q1 but service exports remain strong
Export Growth
24,000
Export of Goods
23,000
Export of Services
€ million (constant prices, sa)
22,000
21,000
20,000
19,000
18,000
17,000
16,000
15,000
2010Q1
2010Q3
2011Q1
2011Q3
10
2012Q1
2012Q3
2013Q1
While the “patent cliff” is impacting on goods exports
 Decline in exports to the US is indicative of patent expiry
 Exports of both organic chemicals and finished products down sharply
11
Domestic developments
12
Signs of stabilisation in “core” retail sales
Personal consumption
4%
3%
2%
y-o-y % change
1%
0%
-1%
-2%
-3%
-4%
Core Retail Sales
-5%
-6%
2010
2011
2012
2013
 Core retail sales have increased in each of the last 4 quarters
 Headline sales revised slightly upward over the summer
13
Supported by continued LM improvements
Labour market developments
3.0%
15.5%
2.0%
15.0%
1.0%
14.5%
0.0%
% y-o-Y Change
-1.0%
13.5%
-2.0%
-3.0%
Level, %
14.0%
13.0%
Employment (lhs)
12.5%
-4.0%
Live Register (SA,
rhs)
-5.0%
12.0%
2010
2011
2012
July
May
March
January
November
September
July
May
March
January
November
September
July
May
March
January
November
September
July
May
March
11.5%
Jan
-6.0%
2013
 Three successive quarters of annual employment growth, with employment
increasing by 1.8% in Q2
 The unemployment rate has fallen 1.7 pp since Feb 2012
14
But savings rate remains elevated
18%
Savings rate (SA)
16%
14%
12%
10%
8%
6%
4%
2%
0%
2008Q1
2008Q4
2009Q3
2010Q2
15
2011Q1
2011Q4
2012Q3
And nominal wages have been broadly stable
5.0%
Earnings composition
4.0%
Average Weekly Paid Hours (Hours)
3.0%
Average Hourly earnings (Euro)
% y-o-y change
2.0%
Earnings per Week (Euro)
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
16
2011Q3
2012Q1
2012Q3
2013Q1
Signs of recovery in “core” investment
Contribution to investment
15%
Building & Construction
M&E - less planes
Other Transport (incl. planes)
Total
10%
5%
y-o-y % change
0%
-5%
-10%
-15%
-20%
-25%
-30%
2010
2011
2012
17
2013
While tourism is out-performing expectations
Trips to Ireland by Area of Residence
900
800
700
600
'000
500
400
300
200
100
0
Great Britain
Jun-Aug 10
Other Europe
Jun-Aug 11
North America
Other Areas
Jun-Aug 12
Jun-Aug 13
 Up 7 per cent y-oy- in June, with gains across all regions
 Tourism expenditure netted out of GDP, but impacts employment and taxes
18
Outlook 2014
20
Budget 2014 work in progress macroeconomic forecasts
2012
2013
2014
0.2
0.2
1.8
163,950
165,875
170,300
GNP
1.8
1.0
1.4
Consumption
-0.3
-0.2
1.1
Government
-3.7
-0.9
-1.9
Investment
-1.0
4.9
6.8
Exports
1.6
-0.6
1.9
Imports
0.0
-0.4
1.4
Employment
-0.7
1.6
1.4
Unemployment
14.7
13.5
12.6
HICP
2.0
0.7
1.5
Current A/C (% of GDP)
4.4
4.4
4.1
GDP
Nominal GDP (€m)
21
Exports being dragged down by goods
8.0
Services exports
6.0
6.9
Goods exports
Exports
4.5
4.0
2.0
2.7
1.9
1.6
0.0
-0.6
-1.0
-2.0
-3.6
-4.0
-4.0
-6.0
2012
2013
22
2014
Real household income - labour income growing in 2014
20
∆ personal consumption deflator
∆ other household income
∆ net cash transfers
15
∆ profit income
∆ labour income
∆ real Yd
% y-o-y change
10
5
0
-5
-10
-15
2001
2002
2003
2004
2005
2006
2007
23
2008
2009
2010
2011
2012
2013
2014
2015
2016
20
2
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
% of labour force
Signs of a breakdown of Okun’s law
Labour market and output (Okun's Law)
18
16
14
12
10
8
6
4
actual une rate
fitted une rate
0
24
Fall in productivity due to compositional shift
8%
Productivity
Employment Growth
6%
Labour Productivity
GDP growth
4%
% y-o-y change
2%
0%
-2%
-4%
-6%
-8%
2001
2002
2003
2004
2005
2006
2007
25
2008
2009
2010
2011
2012
2013
2014
Labour market outlook more positive
Unemployment rate forecasts
15
SPU forecast
Budget 2014
14.5
% of labour force
14
13.5
13
12.5
12
2012
2013
26
2014
But employment growth dominates the impact
2.0%
Contributions to unemployment rate decline
1.5%
Contribution from labour force
Contribution from employment growth
PP change in unemployment Rate
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
2011


2012
2013
2014
Labour force makes light positive contribution to unemployment (endogenous)
But employment growth is making the main contribution to the contraction in
unemployment
27
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
year-on-year per cent change
Exports below level suggested by historical patterns
25.0
Export model
20.0
∆ exports_actual
∆ exports_fitted
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
28
But nominal GDP to come in below expectations
Nominal GDP
176
SPU forecast
Budget 2014
174
172
€billion
170
168
166
164
162
160
158
2012
2013
29
2014
Current A/C and GNP

2012
2013
2014
GNP (yoy % change)
1.8
1.0
1.4
Current account (% of GDP)
4.4
4.4
4.1
GNP boosted strongly by re-domiciled plcs from UK in 12. Strong carryover,
though this effect stalled in H1 13
30
Current account largely stable
30
25
2.0
2.5
4.0
22.2
21.2
19.9
20
15
10
5
0
4.4
4.4
4.1
-5
-10
-19.0
-18.4
-18.7
-0.7
-1.0
-1.0
-15
-20
-25
2012
Transfer balance
Merchandise balance



2013
Services balance
Current account
2014
Income balance
Decline in merchandise balance (pharma) largely offset by services
balance growth over horizon
Income balance reduced in 2013 in response to falling net exports
Transfer balance impacted by EU Budget contributions
31
Inflation – expected to pick-up modestly next year
2.5%
Contributions to HICP
2.0%
y-o-y % change
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
Q1 2013
Food


Q2 2013
Alc and tobacco
Q3 2013
NEIG
Q4 2013
Energy
Q1 2014
Core Services
Q2 2014
Q3 2014
Admin Services
Q4 2014
y-o-y HICP
Assumed reversal of 2011 Jobs Initiative VAT measures expected to add about
0.5pp to HICP – reflected in strong services growth
Drag from NEIG goods and clothing/footwear expected to ease with stronger GDP
32
7
1986q2
1987q1
1987q4
1988q3
1989q2
1990q1
1990q4
1991q3
1992q2
1993q1
1993q4
1994q3
1995q2
1996q1
1996q4
1997q3
1998q2
1999q1
1999q4
2000q3
2001q2
2002q1
2002q4
2003q3
2004q2
2005q1
2005q4
2006q3
2007q2
2008q1
2008q4
2009q3
2010q2
2011q1
2011q4
2012q3
2013q2
2014q1
2014q4
y-o-y % change
Inflation forecast - top down approach
Quarterly CPI (excl. mortgage)
6
5
4
3
2
1
0
-1
Actual Quarterly CPI (excl. mrtg)
-2
Fitted Quarterly CPI (excl. mrtg)
-3
33
GDP deflator – export prices
8.0
export prices_actual
6.0
export prices_fitted
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
34
GDP deflator – import prices
15.0
import prices_actual, y/y
10.0
import prices_fitted y/y
5.0
0.0
-5.0
-10.0
-15.0
35
Key risks to forecasts
External environment
 Global growth may not recover as expected
 Re-intensification of euro area macro financial issues
Internal environment
 Pharma cliff contraction intensifies
 High household debt weighs on consumption
However, stronger growth than expected in our trading
partners could lead to stronger growth here
36
Impact of shocks using HERMES
Year 1
Year 2
% change compared to base
1% increase in world output
GDP
0.8
0.9
1 pp increase in savings rate
GDP
-0.3
-0.3
1 pp increase in interest rate
GDP
-0.3
37
-1.1