1. Macroeconomic Context for Budget 2017
David Duffy, Daniel Foley and Kieran McQuinn
17th June 2016

2. Presentation Roadmap Context for both Short-term:
Short-term and more medium-term
Short-term:
QEC outlook and Nowcasting model
Medium-term: Potential output
Growth accounting framework
Output gap
Fiscal Space
Population Scenarios

3. Short-Term Outlook Strong growth set to continue in 2016
Growth of 4.8%
Nowcasting indicates 1.32% growth in Q
Unemployment 8.7% (annual average)
Moderated Trade outlook
Uncertainty over Brexit a concern
Investment still set to contribute strongly
2016 housing supply just over half of 25,000
Consumption growth supported by
employment, incomes and positive sentiment

4. Figure 1 GDP growth expected to continue

5. Irish economy showing strong growth
Real GDP to grow by 4.8% in 2016 and by 4.1% in 2017
Domestic demand accounting for majority of growth.

6. Employment growth and productivity suggest underlying growth also strong

7. External Environment While US and UK growth forecast positive.
Present growth rates less than previous years.
Export growth of 9.3% in 2016.
Risk of Brexit.
Currency risk
Competitiveness
Tentative evidence to suggest
Uncertainty surrounding Brexit has already impacted

8. PMI shows signs of lower export growth

9. Assessment of Public Finances
Strong tax receipts in 2015, continuing in 2016
Corporation Tax, Income Tax better than expected
General Government deficit
-1.1 in 2016
-0.2 in 2017
Target Surplus in 2017?
Capital Expenditure Plan
Rainy Day fund

10. Labour Supply using population projections
Net migration neutral in 2016
Positive in 2017
Implications for Labour Supply
Impact on Potential Growth
Cobb Douglas Approach, HP Filter

11. Alternative Population Forecasts
Eurostat:
Net negative migration until 2037
Unlikely scenario
CSO M1:
Net migration positive by 2016 and
Rising thereafter to 30,000 p.a. by 2021
CSO M2:
Net migration positive by 2018 and
Rising thereafter to 10,000 p.a. by 2021
Implications for Fiscal Space
vis a vis Potential Growth.

12. Population Projections

13. Potential GDP forecasts

14. Impact on Potential GDP growth
2016
2017
2018
2019
2020
2021 M1
5.1
5.2
4.4
3.8
3.6
3.1 M2
5.0
4.2
3.5
3.3
2.8
Eurostat
4.3
2.5
2.1

15. Implications for Fiscal Space I
Positive Population Scenario
Higher Labour Supply
M1 scenario increasingly likely
Higher Potential GDP growth
Increased available fiscal space

16. Public finances and housing
Output gap closing in 2016?
Housing Supply
13,500 in 2016 and 17,500 in 2017.
Structural demand = 25,000
Unemployment
Steadily declining anyway
By 2017 less than 7 per cent.
Faster rate of housing supply
Potential for overheating?

17. Housing Supply and Unemployment

18. Implications for Output Gap

19. Implications for Fiscal Space II
Possible overheating
Construction picks up
Unemployment falls towards 2000 – 2007 rates
If overheating occurs
May need to run countercyclical budgets
Expenditure Benchmark
Spending can grow at reference rate potential
Less emphasis on the “output gap”

20. David Duffy, Daniel Foley and Kieran McQuinn 17th June 2016
Thank you 
David Duffy, Daniel Foley and Kieran McQuinn
17th June 2016

21. Spring 2016 themes Forecasts for 2017 International Outlook
Lower growth in 2016
Labour Market
Domestic Demand
Investment
Consumption

22. Schedule 2016 March June September December 2016 Housing
2017 Labour market?
September
Pre-Budget analysis
December
Post Budget analysis
Distribution impact of Budget (Tim et al)

23. Outlook GDP to increase 4.8% in 2016 and 4.1% in 2017
Driven by domestic demand, particularly consumption.
Unemployment average 8.7% in 2016 and 7.7% in 2017.
Deficit of 1.1% in 2016 and 0.2% in 2017.
Risks surrounding trade outlook.

24. External Environment

25. Labour market

26. Growth in Personal Consumption to increase

27. Forecast Summary Real Annual Growth % 2014 2015 2016 2017 Consumption
2.0
3.5
3.8
Govt. Expenditure
4.6
-0.8 1
Investment
14.3
28.2
22.5
22.1
Exports
12.1
13.8
9.3
6.7
Imports
14.7
16.3
12.5
10.7
Gross Domestic Product (GDP)
5.2
7.8
4.8
4.1
Gross National Product (GNP)
6.9
5.7 5
4.3