On foot of the substantial growth performance in 2015, the Irish economy looks set to continue to grow robustly in 2016. The economy as measured by GDP grew by 7.8 per cent in 2015; we expect that it will grow by 4.8 per cent in 2016. GNP, which grew by 5.7 per cent in 2015, is expected to increase by 5 per cent in the current year. Growth in 2016 is set to be heavily influenced by domestic factors with investment and consumption continuing to play a more central role in the overall growth performance of the domestic economy

Duffy, David

Foley, Daniel

McQuinn, Kieran

Morley, Ciara

Archive of European Integration

 Quarterly Economic Commentary    David Duffy Kieran McQuinn Ciara Morley Daniel Foley   Spring 2016 The forecasts in this Commentary are based on data available by 10 March 2016. Draft completed 11 March 2016.   Special Article Research Note      A subscription to the Quarterly Economic Commentary costs €327 per year, including VAT and postage.   Authors The Commentary is edited by Kieran McQuinn and David Duffy. Kieran McQuinn is an Associate Research Professor, David Duffy is a Senior Research Officer, and Ciara Morley and Daniel Foley are Research Assistants at the Economic and Social Research Institute (ESRI).   The Quarterly Economic Commentary has been accepted for publication by the Institute, which does not itself take institutional policy positions. It has been peer reviewed by ESRI research colleagues prior to publication. The authors are solely responsible for the content and the views expressed.  Special Articles are published in the QEC in order to foster high-quality debate on various aspects of the Irish economy and Irish economic policy. They are subject to refereeing prior to publication.  Research Notes are short papers on focused research issues. They are subject to refereeing prior to publication.                 © The Economic and Social Research Institute  Whitaker Square, Sir John Rogerson’s Quay, Dublin 2 Q uar te r l y  Eco nomic  Comm en ta ry  –  S pr in g  201 6 | 1 Summary Table  2013 2014 2015 2016 2017 Output (Real Annual Growth %)      Private Consumer Expenditure -0.3 2.0 3.5 3.8 3.5 Public Net Current Expenditure 1.4 4.6 -0.8 1.0 1.0 Investment -6.6 14.3 28.2 22.5 22.1 Exports 2.5 12.1 13.8 9.3 6.7 Imports 0.0 14.7 16.3 12.5 10.7 Gross Domestic Product (GDP) 1.4 5.2 7.8 4.8 4.1 Gross National Product (GNP) 4.6 6.9 5.7 5.0 4.3              Prices (Annual Growth %)      Consumer Price Index (CPI) 0.5 0.2 -0.3 1.0 1.0 Growth in Average Hourly Earnings -0.8 1.6 2.0 2.3 2.3              Labour Market      Employment Levels (ILO basis (000’s)) 1,881 1,914 1,964 2,002 2,038 Unemployment Levels (ILO basis (000’s)) 282 243 204 190 171 Unemployment Rate (as % of Labour Force) 13.1 11.3 9.5 8.7 7.7              Public Finance      General Government Balance (€ bn) -10.2 -7.6 -3.4 -2.5 -0.5 General Government Balance (% of GDP) -5.8 -4.1 -1.6 -1.1 -0.2 General Government Debt (% of GDP) 123.2 109.7 93.9 87.4 82.0              External Trade      Balance of Payments Current Account (€ bn) 5.6 6.8 9.5 8.8 1.8 Current Account (% of GNP) 3.1 3.6 4.4 3.8 0.7             Demand      Final Demand 0.9 9.4 11.9 8.7 7.6 Domestic Demand -1.2 5.7 9.3 7.7 9.0 Domestic Demand (excl. Stocks) -1.5 5.2 8.6 8.6 9.1     2 | Qua rt er ly  Eco no m ic  Comme nt ary  –  S p r i n g  2 016     The Irish Economy – Forecast Overview and Summary  On foot of the substantial growth performance in 2015, the Irish economy looks set to continue to grow robustly in 2016. The economy as measured by GDP grew by 7.8 per cent in 2015; we expect that it will grow by 4.8 per cent in 2016. GNP, which grew by 5.7 per cent in 2015, is expected to increase by 5 per cent in the current year. Growth in 2016 is set to be heavily influenced by domestic factors with investment and consumption continuing to play a more central role in the overall growth performance of the domestic economy.  Notwithstanding this, developments in international markets will also be crucially important for Ireland’s outlook. In Q1 2016 the United Kingdom Government decided on June of this year for the ‘Brexit’ referendum; the growing ambiguity concerning the outcome of this major decision merely serves to compound some of the international, macroeconomic risks posed to the domestic economy. In that regard the first quarter of 2016 has seen a significant degree of uncertainty concerning a number of issues. Much of this uncertainty was prompted towards the end of 2015 by renewed concern surrounding the large imbalances in the Chinese economy. However, more recently there have been worries about the asset quality of certain leading institutions in the European banking sector and nascent concerns about the growth performance of both the European and US economies in Q1 2016. This has led us to modify our growth forecasts for Irish trade down marginally in 2016; however developments in Q2 2016 will provide a firmer indication of whether these uncertainties are likely to have significant real economy impacts for our main trading partners.   On the domestic front there is some uncertainty as well owing to the rather inconclusive nature of the recent General election. While the task of forming a stable government looks to be particularly challenging, in the short term at least it is unlikely there will be any adverse outcomes for the main economic and financial indicators.  The Nowcasting model (summarised in the Appendix) indicates that, despite the growing uncertainty, the domestic economy still grew by 1.5 per cent between the final quarter of 2015 and the first quarter of the present year.   We also release our first estimate of growth in 2017 for the Irish economy. In the previous Commentary we devoted a significant amount of attention to long-run Q uar te r l y  Eco nomic  Comm en ta ry  –  S pr in g  201 6 | 3 trends amongst key Irish macroeconomic variables; namely in investment, the unemployment rate and the growth rate in total factor productivity. Based on this we felt that the output gap would close in 2016. At present, we estimate the rate of Irish potential output growth to be approximately 3.5 per cent. Given the strength of growth in the economy at present, we forecast that both GDP and GNP will grow slightly stronger in 2017, by 4 per cent.   In the International Section of the present Commentary we draw on earlier research by McQuinn and Whelan (2015)1 to place the issue of inward migration in the Euro Area in context. Population forecasts for the Euro Area compiled by EuroStat and presented in McQuinn and Whelan (2015) clearly demonstrate that Europe has an ageing population and crucially that this issue is impacting on the growth prospects for the different Member States right now. Importantly, in the absence of significant net inward migration, future European labour supply is likely to contract with clear, adverse implications for economic growth and living standards. While the Irish population is somewhat younger relative to the European average, the domestic economy will be subject to the same trends over time.  Finally, as with previous Commentaries and reflecting the joint ESRI-BPFI/NAMA research programme, we present a number of papers on the crucial issue of housing supply. Inter alia, these studies examine the issue of heterogeneity in the regional housing supply rates (Morgenroth, 2016), while Barrett and Kelly (2016) conduct an initial examination of housing tenure and movement among Ireland’s older population using The Irish Longitudinal Study on Ageing (TILDA).   Based on these developments in the Irish housing market, we also address the proposed review of the macro-prudential measures introduced last year, which is to be conducted by the Central Bank of Ireland later in the year. As with Duffy and McQuinn (2015)2 we argue that any review should seek to place the implementation of this new important policy area on a rules basis which, crucially, takes cyclical developments in both the demand and the supply side of the housing market into consideration.                                                             1  McQuinn, K. and K. Whelan (2015). ‘Europe’s Long-Term Growth Prospects: With and Without Structural Reforms’, ESRI Working Paper No. 501. Available at www.esri.ie/pubs/WP501.pdf. 2  Duffy, D. and K. McQuinn (2014). ‘Assessment of Proposed Macro-Prudential Policy Measures’, Appendix, Quarterly Economic Commentary, Winter 2014, ESRI. 4 | Qua rt er ly  Eco no m ic  Comme nt ary  –  S p r i n g  2 016   National Accounts 2015 A: Expenditure on Gross National Product   2014 2015 Change in 2015  € bn € bn Value Price Volume Private Consumer Expenditure 89.0 92.4 3.8 0.4 3.5 Public Net Current Expenditure 27.2 27.9 2.3 3.1 -0.8 Gross Fixed Capital Formation 36.5 47.2 29.4 0.9 28.2 Exports of Goods and Services 215.0 260.6 21.2 6.5 13.8 Physical Changes in Stocks 1.9 2.7    Final Demand 369.6 430.7 16.6 4.1 11.9less:      Imports of Goods and Services 180.3 215.7 19.6 2.9 16.3 Statistical Discrepancy -0.2 -0.2    GDP at Market Prices 189.3 215.0 13.6 5.5 7.7 Net Factor Payments -26.2 -31.7    GNP at Market Prices 162.9 183.1 12.4 6.4 5.7  B: Gross National Product by Origin   2014 2015 Change in 2015  € bn € bn € bn % Agriculture 3.4 3.4 0.0 1.0 Non-Agriculture: Wages, etc. 70.0 73.4 3.3 4.8 Other 68.4 88.8 20.4 29.8 Adjustments: Stock Appreciation -0.3 -0.3   Statistical Discrepancy 0.2 0.2   Net Domestic Product 141.9 165.6 23.7 16.7Net Factor Payments -26.2 -31.7 -5.5 21.0 National Income 115.7 133.9 18.3 15.8 Depreciation 29.3 30.0 0.7 2.3 GNP at Factor Cost 145.0 163.9 18.9 13.1 Taxes less Subsidies 17.9 19.2 1.3 7.4 GNP at Market Prices 162.9 183.1 20.3 12.4  C: Balance of Payments on Current Account   2014 2015 Change in 2015  € bn € bn € bn X – M 34.8 44.9 10.1 F -26.2 -31.7 -5.5 Net Transfers -2.7 -2.9 -0.1 Balance on Current Account 5.9 10.4 4.5 as % of GNP 3.6 5.7 2.4   Q uar te r l y  Eco nomic  Comm en ta ry  –  S pr in g  201 6 | 5 National Accounts 2016 A: Expenditure on Gross National Product   2015 2016 Change in 2016  € bn € bn Value Price Volume Private Consumer Expenditure 92.4 96.9 4.8 1.0 3.8 Public Net Current Expenditure 27.9 28.6 2.8 1.8 1.0 Gross Fixed Capital Formation 47.2 59.5 25.9 2.8 22.5 Exports of Goods and Services 260.6 293.2 12.5 3.0 9.3 Physical Changes in Stocks 2.7 1.0    Final Demand 430.7 479.2 11.2 2.4 8.7less:      Imports of Goods and Services  215.7 249.4 15.6 2.8 12.5 Statistical Discrepancy -0.2 -0.2    GDP at Market Prices 215.0 229.8 6.9 2.0 4.7 Net Factor Payments  -31.7 -33.0    GNP at Market Prices 183.1 196.5 7.3 2.2 5.0  B: Gross National Product by Origin   2015 2016 Change in 2016  € bn € bn € bn % Agriculture 3.4 3.5 0.1 2.5 Non-Agriculture: Wages, etc. 73.4 76.7 3.3 4.5 Other 88.8 98.8 10.0 11.3 Adjustments: Stock Appreciation -0.3 -0.3   Statistical Discrepancy 0.2 0.2   Net Domestic Product 165.6 179.0 13.4 8.1Net Factor Payments -31.7 -33.0 -1.3 4.2 National Income 133.9 146.0 12.0 9.0 Depreciation 30.0 30.0 0.0 0.0 GNP at Factor Cost 163.9 176.0 12.0 7.3 Taxes less Subsidies 19.2 20.6 1.4 7.1 GNP at Market Prices 183.1 196.5 13.4 7.3  C: Balance of Payments on Current Account   2015 2016 Change in 2016  € bn € bn € bn X – M 44.9 43.8 -1.1 F -31.7 -33.0 -1.3 Net Transfers -2.9 -2.9 0.0 Balance on Current Account 10.4 8.0 -2.4 as % of GNP 5.7 4.1 -1.2  6 | Qua rt er ly  Eco no m ic  Comme nt ary  –  S p r i n g  2 016   National Accounts 2017 A: Expenditure on Gross National Product   2016 2017 Change in 2017  € bn € bn Value Price Volume Private Consumer Expenditure 96.9 101.2 4.5 1.0 3.5 Public Net Current Expenditure 28.6 28.8 0.4 -0.6 1.0 Gross Fixed Capital Formation 59.5 74.6 25.4 2.8 22.1 Exports of Goods and Services 293.2 319.9 9.1 2.3 6.7 Physical Changes in Stocks 1.0 2.0    Final Demand 479.2 526.5 9.9 2.1 7.6less:      Imports of Goods and Services  249.4 281.9 13.0 2.1 10.7 Statistical Discrepancy -0.2 -0.2    GDP at Market Prices 229.8 244.7 6.5 2.2 4.2 Net Factor Payments  -33.0 -34.2    GNP at Market Prices 196.5 210.2 7.0 2.6 4.3  B: Gross National Product by Origin   2016 2017 Change in 2017  € bn € bn € bn % Agriculture 3.5 3.6 0.1 3.5 Non-Agriculture: Wages, etc. 76.7 79.9 3.2 4.2 Other 98.8 108.8 10.0 10.1 Adjustments: Stock Appreciation -0.3 -0.3   Statistical Discrepancy 0.2 0.2   Net Domestic Product 179.0 192.4 13.4 7.5Net Factor Payments -33.0 -34.2 -1.2 3.6 National Income 146.0 158.2 12.2 8.3 Depreciation 30.0 30.0 0.0 0.0 GNP at Factor Cost 176.0 188.2 12.2 6.9 Taxes less Subsidies 20.6 22.1 1.5 7.4 GNP at Market Prices 196.5 210.2 13.7 7.0  C: Balance of Payments on Current Account   2016 2017 Change in 2017  € bn € bn € bn X – M 43.8 38.1 -5.8 F -33.0 -34.2 -1.2 Net Transfers -2.9 -2.9 0.0 Balance on Current Account 8.0 1.0 -7.0 as % of GNP 4.1 0.5 -3.3  

The Irish Economy – Forecast Overview and Summary. Quarterly Economic Commentary Special Article, Spring 2016

http://aei.pitt.edu/99620/1/QEC2016SPR_ES.pdf

The Irish Economy – Forecast Overview and Summary. Quarterly Economic Commentary Special Article, Spring 2016

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