On June 22, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Ireland.
The Irish economy continues to grow at a rapid pace, well above the EU average. Although headline data are distorted by the volatility of multinationals’ activity, the broad recovery of (modified) domestic demand (4 percent in 2017) underpins the expansion. Strong labor market performance brought the unemployment rate down to below 6 percent by April 2018. While wage pressures emerged in some sectors, inflation remained subdued, mainly reflecting the pass-through of pound sterling depreciation. Public finances continued to improve on the back of strong output growth, while the public debt burden declined slightly to 68 percent of GDP. Ireland’s current account surplus widened to 12½, mainly reflecting activities of multinationals.
Banks have continued to strengthen their financial soundness and remain profitable. While still high, nonperforming loans have declined. Although loan repayments from the nonfinancial corporate sector continued to outstrip new lending, credit recovery endured, as consumer and mortgage loans picked up. Reflecting improved labor market conditions, rising incomes, and low interest rates, housing demand has recovered strongly whereas the supply response has been modest so far, thus leading to growing pressure on house prices and rents.
The outlook remains broadly positive but with externally-driven downside risks. Abstracting from the volatility of activities of multinationals, growth is projected at about 5 percent in 2018 mainly driven by domestic demand, and to gradually converge to its potential rate (around 3 percent) over the medium term. Solid employment growth would bring unemployment below 5 percent by the end of the forecasting period and underpin a rise in earnings. Hence, headline inflation is expected to gradually reach 2 percent. Public finances are projected to improve further, while the external current account surplus is estimated to taper off to around 6½ percent of GDP over the medium term.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.