Abstract
Ireland continues to achieve spectacular economic growth. Strains associated with the rapid growth have become more visible. Fiscal policy should be tightened to restrain excess demand pressures. Strict adherence to the agreed wage increases under the Programme for Prosperity and Fairness (PPF) is critical. The government's plans to simplify the tax structure are commended. Ireland's participation in the Financial Sector Assessment Program (FSAP) pilot project is commended. The sustained rapid growth in private sector lending requires vigilance. The government support for trade liberalization process is welcome.
The following information has become available since the staff report (SM/00/ 163) was issued. This information does not change the thrust of the staff appraisal.
1. Preliminary national income accounts data for 1999 indicate that real GNP expanded by 7.8 percent, the same increase as in 1998 and lower than the 8.9 percent estimate shown in the staff report (see attached table). The difference mainly reflects larger outflows of net factor incomes, as real GDP growth (9.8 percent) was broadly in line with the estimate in the staff report. Growth in private consumption and gross capital formation remained very buoyant, while the contribution of net exports was somewhat larger than expected, reflecting relatively sluggish growth in imports. However, there was an offsetting effect from a decline in inventories.
2. The Central Statistics Office has also released revised balance of payments data for 1998 and 1999. The changes included a downward revision in the estimated current account surplus for 1998 (from 2 percent of GDP to 0.9 percent) and an upward revision for 1999 (from 0.3 percent to 0.6 percent). The current account remained in a modest surplus in the first quarter of 2000 amid strong growth in both exports and imports (up 22 and 17 percent, respectively, in volume terms on a 12-month basis).
3. Harmonized consumer price inflation accelerated further to 5.4 percent (12 month basis) in June, up from 5.1 percent in May. On a national basis, the headline inflation rate (including mortgage interest costs) reached 5.5 percent. Services price inflation was 6 percent, and underlying services price inflation (based on the methodology used by the Central Bank of Ireland) was 7.5 percent. In a recent speech, the Minister of Finance said that he expects inflation to rise further in coming months before falling back somewhat in December, and that revised official forecasts to be released next month are likely to show average inflation for 2000 within the 4¾ - 5¼ percent range projected by most market analysts.
4. According to the Irish Permanent Index, national house price inflation averaged 20.1 percent in the first half of 2000 (12-month basis), down from 26.8 percent for the same period in 1999 but above the 18.9 percent average recorded in the second half of 1999. Over the 12 months to June, national house prices increased by 21.4 percent. Official data for the first quarter show more moderate rates of increase (12.9 percent for new houses and 13.7 percent for existing houses on a 12-month basis).1
Ireland: National Accounts
Contribution to GNP growth.
Contribution to GDP growth.
Ireland: National Accounts
| 1995 | 1996 | 1997 | 1998 | 1999 | |||
|---|---|---|---|---|---|---|---|
| Staff estimates SM/00/163 | Preliminary outcome | ||||||
| (Real growth rates in percent) | |||||||
| Consumption | 4.0 | 5.7 | 7.1 | 7.3 | 7.7 | 7.2 | |
| Private | 4.3 | 6.3 | 7.4 | 7.8 | 8.5 | 7.7 | |
| Public | 2.8 | 3.1 | 5.7 | 5.1 | 4.3 | 5.2 | |
| Investment | 22.0 | 16.1 | 19.8 | 16.0 | 12.3 | 3.7 | |
| Gross domestic fixed capital formation | 12.7 | 16.4 | 17.9 | 15.5 | 15.0 | 13.0 | |
| Stockbuilding 1/ | 1.3 | 1.3 | 1.8 | 2.0 | 1.3 | -0.3 | |
| Total domestic demand | 7.2 | 7.8 | 9.8 | 9.4 | 8.9 | 6.3 | |
| Exports of goods and nonfactor services | 20.0 | 12.2 | 17.4 | 21.4 | 15.0 | 12.4 | |
| Imports of goods and nonfactor services | 16.4 | 12.5 | 16.8 | 25.8 | 15.6 | 8.7 | |
| Net exports 1/ | 4.3 | 1.4 | 2.9 | -0.4 | 1.5 | 5.2 | |
| Gross domestic product | 9.7 | 7.7 | 10.7 | 8.6 | 9.9 | 9.8 | |
| Net factor income from abroad | -2.4 | -1.2 | -2.5 | -1.7 | -2.2 | -3.0 | |
| Gross national product | 8.2 | 7.4 | 9.3 | 7.8 | 8.9 | 7.8 | |
Contribution to GNP growth.
Contribution to GDP growth.
Ireland: National Accounts
| 1995 | 1996 | 1997 | 1998 | 1999 | |||
|---|---|---|---|---|---|---|---|
| Staff estimates SM/00/163 | Preliminary outcome | ||||||
| (Real growth rates in percent) | |||||||
| Consumption | 4.0 | 5.7 | 7.1 | 7.3 | 7.7 | 7.2 | |
| Private | 4.3 | 6.3 | 7.4 | 7.8 | 8.5 | 7.7 | |
| Public | 2.8 | 3.1 | 5.7 | 5.1 | 4.3 | 5.2 | |
| Investment | 22.0 | 16.1 | 19.8 | 16.0 | 12.3 | 3.7 | |
| Gross domestic fixed capital formation | 12.7 | 16.4 | 17.9 | 15.5 | 15.0 | 13.0 | |
| Stockbuilding 1/ | 1.3 | 1.3 | 1.8 | 2.0 | 1.3 | -0.3 | |
| Total domestic demand | 7.2 | 7.8 | 9.8 | 9.4 | 8.9 | 6.3 | |
| Exports of goods and nonfactor services | 20.0 | 12.2 | 17.4 | 21.4 | 15.0 | 12.4 | |
| Imports of goods and nonfactor services | 16.4 | 12.5 | 16.8 | 25.8 | 15.6 | 8.7 | |
| Net exports 1/ | 4.3 | 1.4 | 2.9 | -0.4 | 1.5 | 5.2 | |
| Gross domestic product | 9.7 | 7.7 | 10.7 | 8.6 | 9.9 | 9.8 | |
| Net factor income from abroad | -2.4 | -1.2 | -2.5 | -1.7 | -2.2 | -3.0 | |
| Gross national product | 8.2 | 7.4 | 9.3 | 7.8 | 8.9 | 7.8 | |
Contribution to GNP growth.
Contribution to GDP growth.
The official data measure average house prices based on mortgage loan approvals, whereas the Irish Permanent Index is a standardized measure that takes into account changes in the composition of house sales.