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IMF Executive Board Concludes 2019 Article IV Consultation with Ireland

June 17, 2019

On June 14, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Ireland.

The strong growth of the Irish economy continued as multinational sector-led net exports boosted real GDP growth in 2018 to 6.8 percent, while (modified) domestic demand expanded by 3.3 percent. Solid job creation pushed the unemployment rate below 6 percent, with strengthening net inward migration. Inflation has been gradually rising on the back of sustained demand pressures and dissipating effects of past sterling depreciation. Public finances improved further, supported by strong output growth and abundant unforeseen corporate income tax proceeds. Public debt declined by almost 4 percentage points to below 65 percent of GDP (105 percent of GNI*). The current account surplus widened moderately to 9.1 percent of GDP, mainly reflecting activities of multinationals.

The downsized banking sector is well capitalized and liquid, but profitability is under pressure and credit to the economy has only recently begun to expand. While still high, nonperforming loans have declined. At the same time, investment funds and other financial intermediaries continue to grow rapidly, lifting the overall size of Ireland’s financial sector above its pre-crisis level. Household balance sheets have improved on the back of strong income growth. Housing prices continued to grow, but at a slower pace amid signs that the supply of housing has begun to respond to rising demand.

The outlook is broadly positive, provided Brexit proceeds in an orderly manner. Growth is projected to slow to about 4 percent in 2019 as one-off factors driving MNEs’ net exports dissipate, and to gradually converge to its potential rate of close to 3 percent over the medium term, thereby closing the positive output gap. Further employment growth will tap foreign labor inflows, reduce unemployment to about 5 percent, and support earnings and private consumption. Headline inflation is expected to reach 2 percent over the medium term. Public finances are estimated to improve further. The external current account surplus is projected to subside to below 5 percent of GDP over the medium term.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Ireland’s strong, broad‑based growth, bringing unemployment down to historical lows and strengthening public and private balance sheets. Directors noted that while the outlook remains favorable, there are challenges from domestic capacity constraints and external downside risks, notably a no‑deal Brexit, escalation of global protectionism, and adapting to ongoing international tax changes. Against this background, Directors encouraged the authorities to strengthen fiscal buffers, address key structural bottlenecks to growth, and continue preparing for Brexit.

Noting the advanced cyclical position and external risks to the outlook, Directors encouraged the authorities to accelerate fiscal consolidation to alleviate demand pressures and build buffers. They saw merit in saving additional corporate tax revenue, broadening the tax base to reduce dependency on uncertain revenues, reforming personal income taxation to make it more efficient, and enforcing spending limits. They underscored the importance of ensuring value‑for‑money in public infrastructure investments. Directors supported establishing the Rainy‑Day Fund as a fiscal tool for unforeseen events and welcomed the authorities’ commitment to using all proceeds from financial sector divestments to reduce public debt. They encouraged the authorities to continue implementing the international tax reform agenda, develop an ambitious strategy to achieve Ireland’s climate change commitments, and strengthen the long‑term financial soundness of the Social Insurance Fund.

Directors acknowledged that Ireland is uniquely vulnerable to a no‑deal Brexit. They concurred that, if this risk were to materialize, the government should let automatic fiscal stabilizers operate freely and provide targeted support to hard‑hit sectors. A fiscal stimulus may be called for, depending on the severity of the downturn in the broader economy. In case of a sharp credit contraction, Directors considered that the countercyclical capital buffer could be released.

Directors welcomed the progress in balance sheets repair of the domestic banks but stressed that continued efforts to improve asset quality remain a priority. To help reach the targets for NPL reduction, they supported measures to accelerate legal processes, encourage creditor‑borrower engagement, and enhance supervisory efforts. Directors welcomed the proactive use of macroprudential policy tools and endorsed the expansion of the toolkit with a systemic risk buffer and debt‑based measures. They also encouraged further strengthening the AML/CFT framework.

Directors noted the authorities’ efforts in data collection on the large and fast‑growing nonbank sector. They encouraged the authorities to further improve data collection, closely monitor risk build‑up, and develop system‑wide stress testing. In view of the sector’s global reach, Directors emphasized the need for continued engagement in international cooperation. Close cooperation with the EU and the U.K. should continue to avoid cliff‑edge risks related to Brexit.

Directors underscored the importance of addressing key structural bottlenecks to growth. They welcomed the progress in the provision of social housing and encouraged the authorities to continue their efforts to boost housing supply, including through further rationalizing building regulations. Directors recognized the need to boost productivity in domestic firms, also by direct funding of innovation, employee training programs, and infrastructure investments. They supported the authorities’ measures to increase female employment, notably through the affordable child care program, and encouraged further aligning educational paths with business demand for high‑skilled jobs.

Ireland: Selected Economic Indicators, 2016–24

Populations (2018, millions):

4.8

Per capita income (euros): 37,545

Quota (as of Apr. 30, 2018, millions of SDRs):

3,449.9

At-risk-of -poverty rate 1/: 16.6

Projections

2016

2017

2018

2019

2020

2021

2022

2023

2024

(annual percentage change, constant prices, unless otherwise indicated)

Output/Demand

Real GDP

4.9

7.2

6.8

4.1

3.4

3.1

2.9

2.7

2.7

Domestic demand

22.7

-13.0

4.4

3.8

3.3

3.0

2.8

2.7

2.7

Public consumption

3.5

3.9

6.4

3.0

1.7

2.5

2.9

2.1

2.3

Private consumption

3.7

1.9

3.0

2.5

2.5

2.4

2.4

2.3

2.3

Gross fixed capital formation

53.2

-30.2

7.8

5.9

5.2

4.1

3.5

3.5

3.5

Exports of goods and services

4.4

7.7

8.9

4.6

4.4

4.3

4.2

4.1

4.1

Imports of goods and services

18.5

-9.3

7.2

4.5

4.6

4.6

4.6

4.6

4.6

Potential growth

3.5

8.5

6.0

4.3

3.7

3.5

3.2

3.0

2.8

Output gap

1.9

0.7

1.5

1.3

1.1

0.7

0.5

0.2

0.0

Contribution to growth

Domestic demand

16.0

-10.7

2.8

2.6

2.3

2.1

2.0

1.9

1.9

Consumption

1.7

1.1

1.7

1.1

1.0

1.0

1.1

1.0

1.0

Gross fixed capital formation

12.6

-10.7

1.8

1.5

1.3

1.0

0.9

0.9

0.9

Inventories

1.7

-1.1

-0.6

0.0

0.0

0.0

0.0

0.0

0.0

Net exports

-12.1

18.9

4.4

1.5

1.1

1.0

0.9

0.8

0.8

Residual

1.0

-1.0

-0.4

0.0

0.0

0.0

0.0

0.0

0.0

Prices

Inflation (HICP)

-0.2

0.3

0.7

1.2

1.5

1.7

1.9

2.0

2.0

GDP deflator

-0.8

0.4

1.4

1.2

1.4

1.8

2.0

2.0

2.0

Terms-of-trade (goods and services)

-0.4

-1.8

-0.8

-1.0

-0.1

0.2

0.4

0.3

0.2

Employment and wages

Employment (ILO definition)

3.6

2.9

2.9

1.9

1.4

1.1

1.0

1.0

1.0

Unemployment rate (percent)

8.4

6.7

5.8

5.4

5.0

5.0

4.9

4.9

4.9

Average nominal wage

1.1

2.3

3.6

2.7

2.6

2.6

2.6

2.6

2.6

(percent of GDP)

Public Finance, General Government

Revenue

27.0

26.1

25.8

25.9

25.5

25.3

24.7

24.6

24.5

Expenditure

27.6

26.3

25.8

26.0

25.3

25.0

24.2

24.0

23.8

Overall balance

-0.7

-0.3

0.0

0.0

0.2

0.3

0.5

0.7

0.7

Primary balance

1.6

1.7

1.7

1.5

1.5

1.5

1.6

1.8

1.8

Structural balance (percent of potential GDP)

-1.5

-0.4

-0.5

-0.4

-0.2

0.1

0.3

0.6

0.7

General government gross debt

73.5

68.6

64.8

62.3

58.8

57.0

54.0

51.1

48.0

General government net debt

64.8

59.8

55.8

53.1

51.5

49.5

46.7

44.1

41.2

Balance of payments

Trade balance (goods)

38.9

36.7

34.5

32.8

32.0

31.7

31.5

31.4

31.4

Current account balance

-4.2

8.5

9.1

7.9

6.9

6.3

5.8

5.2

4.6

Gross external debt (excl. IFC)

294.4

255.0

221.3

209.7

200.3

191.5

183.3

176.3

169.8

Saving and investment balance

Gross national savings

33.7

33.2

35.0

35.6

35.2

34.9

34.6

34.3

33.9

Private sector

32.4

31.7

33.3

34.0

33.5

33.1

32.7

32.3

31.9

Public sector

1.3

1.5

1.7

1.6

1.7

1.8

1.8

2.0

2.0

Gross capital formation

37.9

24.8

25.1

26.5

26.9

27.1

27.2

27.4

27.5

(percent)

Monetary and financial indicators 2/

Bank credit to private sector (growth rate)

-7.6

-3.2

-3.4

Deposit rates

0.7

0.4

0.3

Government 10-year bond yield

0.7

0.8

1.1

Memorandum items:

Nominal GDP (€ billions)

272.9

293.7

318.3

335.4

351.8

369.4

387.7

405.9

425.0

Modified total domestic demand (percent)

8.4

1.4

3.3

3.6

3.2

3.1

3.0

2.7

2.7

Potential real GNI* growth (percent)

2.4

2.1

1.9

Population growth (percent)

1.2

1.1

1.2

1.3

1.0

1.0

1.0

1.0

1.0

Sources: CSO; DoF; Eurostat; and IMF staff.

1/ Share of population with an equivalised disposable income (including social transfers) below the threshold of 60 percent of the national median equivalised disposable income after social transfers. Data is as of 2016.

2/ Latest observation is November 2018.


[1] 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.

[2] 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 .

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MEDIA RELATIONS

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Phone: +1 202 623-7100Email: MEDIA@IMF.org


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