Ireland: Staff Report for the Fourth Post-Program Monitoring Discussions—Supplementary Information

Ireland: Fourth Post-Program Monitoring Discussions-Press Release; and Staff Report

Abstract

Ireland: Fourth Post-Program Monitoring Discussions-Press Release; and Staff Report

1. National accounts data for 2015 Q3 reaffirm the strength of the Irish economy. The GDP grew 7 percent year-on-year in Q3, with a continued momentum of all expenditure components, and notably investment growth of some 36 percent, buoyed by substantial investment of multinationals in research and development. Exports continue to expand at double-digits, but stronger imports, reflecting partly the increase in service imports related to surging intangible investments, led to a negative contribution of net trade in Q3. The Irish GDP is now 7.3 percent above its pre-crisis peak of 2007.

Real National Accounts, 2015Q3

(Percentage change)

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Sources: Central Statistics Office; and IMF staff calculations.

2. December exchequer data confirmed the sizeable outperformance of public finance in 2015. Full-year revenues came out €3.5 billion above the initial budget profile, fueled largely by strong corporate income tax receipts (€2.3 billion above profile and about 50 percent higher than in 2014). Expenditure recorded a more moderate increase, rising by €1.2 billion over the initial budget profile (but slightly below the supplementary budget envelope), as a lower than planned interest bill partly offset a larger increase in current primary spending. Although final deficit numbers for 2015 will only be published in April, the 2015 deficit should fall close to 1.5 percent of GDP—below staff’s projection of 1.9 percent of GDP. This creates a possibility of an upside for the 2016 fiscal outturn compared to staff projections as the expenditure benchmark will provide a constraint on spending.

Full-year 2015 Fiscal Performance

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Sources: Exchequer Report (December 2015); and IMF staff calculations.

Initial budget profile.

Estimated, excluding transactions with no general government impact.

3. Inflation turned negative again. The harmonized CPI (HIPC) fell by 0.1 percent in November year-on-year for the first time since April 2015 and after remaining unchanged in September-October. The decline was driven by both core and non-core items. Core inflation (excluding energy and unprocessed food) eased to 1.3 percent year-on-year from 1.5 percent in October.

4. Macroprudential framework was further strengthened in line with the EU banking regulations. The Central Bank of Ireland announced in December the Countercyclical Capital Buffer (CCB) and “Other Systemically Important Institutions” Buffer (O-SII) rates as part of the new EU banking regulations that are applicable in Ireland from 2016. In view of the weak credit developments in Ireland, the CCB rate has been set at zero percent, and will be reviewed on a quarterly basis. The O-SII buffer will apply to the Bank of Ireland and Allied Irish Banks and will be phased in gradually from July 2019 until it reaches 1.5 percent in 2021.

5. Prices of commercial real estate (CRE) continued to increase in 2015Q3, albeit at a slower pace. The CRE prices rose by 22 percent in Q3 compared to 30 percent at end-2014, largely reflecting ongoing supply shortages in the offices market. Nevertheless, CRE prices remain 49 percent below their peak at end-2007.

Ireland: Fourth Post-Program Monitoring Discussions-Press Release; and Staff Report
Author: International Monetary Fund. European Dept.