Developments in individual OECD countries: Ireland - economic indicators - Illustration - Statistical Data Included

OECD Economic Outlook, Dec, 2001

With exports slowing rapidly and service sector employment and output close to stagnation, GDP growth is decelerating sharply, albeit from an unsustainably high level in 2000. However, with the world economy expected to recover and underpinned by continuing strength in consumption, growth is likely to accelerate to around 6 1/2 per cent in 2003.

The budget surplus is set to fall quite markedly as tax revenues decline. Rising current expenditures should be carefully monitored to ensure that objectives are being achieved efficiently. Policy needs to continue to focus on improving human capital and the provision of infrastructure but will need to be supported by moderate pay increases in the private sector to maintain competitiveness.

With exports equal to some 95 per cent of GDP and concentrated in the high technology sector, the economy has been hard hit by the global slowdown in demand for information and communication technology (ICT) products. Industrial production fell at an annualised rate of around 20 per cent in the three months to August, and several plants have closed. Tourist activity declined over the summer months due to the threat of foot and mouth disease, and widespread cancellations have also been reported in the wake of the September events.

Employment increased somewhat in the first half of 2001, suggesting that GDP nevertheless continued to expand. Activity has been underpinned by strong private consumption and buoyant public sector demand. Wages have continued to rise by some 8 per cent annually and, combined with tax reductions and slower inflation, real disposable income has grown significantly. This has led to substantial retail sales. Housing construction growth has fallen rapidly this year, but house prices have remained firm. Public expenditures on health and education have risen rapidly owing to attempts to re-establish wage relativity with the private sector and to bolster service provision.

Tax revenues have been much lower than expected, due both to weaker activity and to special factors. Indirect taxes have been very weak owing to reduced cross-border trade, especially for gasoline, and subdued tourist activity. Moreover, lower car sales, following last year's surge, have also had a marked impact. On the other hand, income tax receipts have weakened despite the strong rise in wages and continued employment growth, suggesting that bonuses have suffered a marked reduction. The government has partially offset higher expenditures with slower implementation of the National Development Plan, thereby limiting the overall increase. The projection assumes that the government will go ahead with its prior tax commitments in 2002 but go no further and will stabilise expenditure growth at recent levels. The budget surplus is projected to decline by some 1 1/2 per cent of GDP this year and by around 1 per cent next, stabilising at around 2 per cent of GDP in 2002 and 2003. The structural surplus is projecte d to remain broadly unchanged over the next two years suggesting no change in the fiscal stance.

Exports and the associated imports are likely to remain weak until well into 2002 when a pick-up in the world economy is projected. Global recovery should lead to a significant rebound in exports since the main forces attracting foreign manufacturing activity in recent years will not have changed significantly. In the meantime, both private and government consumption and infrastructure investment will support activity at a moderate level. GDP growth is projected to fall to some 5 1/2 per cent in 2001 and to around 33/4 per cent in 2002 before recovering to 6 1/2 per cent in 2003. With the labour farce expected to continue to expand, the unemployment rate should drift up to some 51/4 per cent, while wage growth and price inflation are projected to slow.

A key risk is that wages will continue to grow rapidly; if the euro were also to appreciate, competitiveness might deteriorate significantly. This would reduce the impact of the global pick-up going into 2003. With the economy slowing, house prices could weaken, leading to reduced consumption and less buoyant household sentiment. However, the banking system appears to be well prepared for the situation, so that the risk of financial distress remains limited.

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Ireland: Demand, output and prices

                                    1998       1999
                               current prices    Percentages changes,
                                                 volume (1995 prices)
                               billion euros

Private consumption                 39.4        8.2
Government consumption              10.2        6.5
Gross fixed capital formation       17.0       14.0
Final domestic demand               66.6        9.3
 Stockbuilding (a)                   1.2       -1.9
Total domestic demand               67.7        7.0

Exports of goods and services       66.8       15.7
Imports of goods and services       58.0       11.9
 Net exports (a)                     8.8        5.0

GDP at market prices                77.1       10.8
GDP deflator                           -        4.2
GNP at market prices                67.7        8.2

Memorandum items
Private consumption deflator           -        3.4
Unemployment rate                      -        5.6
Household saving ratio (b)             -       10.4
General government financial           -        2.3
 balance (c)
Current account balance (c)            -        0.4

                               2000                   2001      2002
                               Percentages changes, volume (1995 prices)


Private consumption             9.9                    6.2       5.5
Government consumption          5.4                    5.2       5.3
Gross fixed capital formation   7.0                    2.5      -0.6
Final domestic demand           8.5                    5.1       4.0
 Stockbuilding (a)              0.6                    0.1      -0.1
Total domestic demand           9.2                    5.2       3.8

Exports of goods and services  17.3                    5.1       1.2
Imports of goods and services  16.0                    4.8       1.0
 Net exports (a)                3.6                    1.2       0.4

GDP at market prices           11.5                    5.6       3.7
GDP deflator                    4.3                    4.0       4.6
GNP at market prices           10.4                    5.0       2.9

Memorandum items
Private consumption deflator    4.7                    4.3       3.5
Unemployment rate               4.3                    4.3       5.3
Household saving ratio (b)      7.9                    8.3       8.4
General government financial    4.6                    3.2       2.2
 balance (c)
Current account balance (c)    -0.7                   -2.0      -1.8

                               2003
                               Percentage
                               s changes,
                                 volume
                                 (1995
                                prices)


Private consumption             6.5
Government consumption          5.3
Gross fixed capital formation   5.9
Final domestic demand           6.2
 Stockbuilding (a)              0.1
Total domestic demand           6.3

Exports of goods and services   8.8
Imports of goods and services   9.3
 Net exports (a)                1.1

GDP at market prices            6.4
GDP deflator                    4.3
GNP at market prices            6.3

Memorandum items
Private consumption deflator    3.3
Unemployment rate               5.3
Household saving ratio (b)      8.2
General government financial    1.9
 balance (c)
Current account balance (c)    -1.6

(a)Contributions to changes in real GDP (percentage of real GDP in
previous year), actual amount in the first column.

(b)As a percentage of disposable income.

(c)As a percentage of GDP.

Source: OECD.