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Quarterly Economic Commentary, Autumn 2018
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Quarterly Economic
Commentary, Autumn 2018
DATE
25th September 2018
VENUE
ESRI, Whitaker Square,
Sir John Rogerson’s Quay,
Dublin 2
AUTHORS
K. McQuinn, C. O’Toole,
P. Economides
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Outline
• Forecasts
• Domestic environment
• Monetary and Financial Conditions
• Housing Market
• Public Finances
• External environment
• Conclusions and General Assessment
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Economic growth in 2018 & 2019
Output
Real GDP to grow by 8.9% in 2018 and 4.5% 2019.
Employment
To reach 2,257m in 2018 and 2,313m in 2019.
Unemployment rate to average 5.7% in 2018.
Public finances
General Government Balance, 2018: -0.2%, 2019: 0.1%
Debt-to-GDP, 2018: 64.2%, 2019: 60.7%
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Source: Central Statistics Office
Note: 4-Quarter Rolling Averages
0
1
1
2
2
3
3
4
4
5
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018
0
2
4
6
8
10
12
14
16
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018
-20
-10
0
10
20
30
40
50
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018
Revision to headline GDP due to two reasons
Greater than expected growth in consumption and modified investment in first half
of 2018.
And fall in imports
Driven primarily by MNC services trade.
Real Private Consumption Growth Modified Investment Growth Export & Import Growth
Forecasts
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Personal Consumption of Goods and Services
Source: Central Statistics Office
20,000
21,000
22,000
23,000
24,000
25,000
26,000
-6%
-4%
-2%
0%
2%
4%
6%
Euro Mn Growth Y-o-Y
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Investment
Investment by asset type
Intangible asset investments fell for six consecutive quarters.
B&C Share; 20% of investment in Q2 2017 to 33% in Q2 2018.
B&C by asset type
Dwellings +37.8%
(low base, one third of dwellings investment in 2005)
Other B&C +10%
Housing completions forecast:
18,550 in 2018 and
24,500 in 2019.
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Labour Market
Unemployment
Rate 5.6 per cent in August
Falling to 5.1 per cent in 2019
Employment
Increase by 2.9 per cent in 2017 and 2018
2.5 per cent increase expected in 2019
Earnings
Average weekly earnings rose 2.8 per cent in 2018Q2
Low inflation and falling unemployment suggests
Further real wage growth in 2019
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Monetary and Financial Conditions
New mortgage lending remains in double digits year-on-year
Q2 2018 saw 16.5% increase.
Lending to SMEs up, particularly for construction & real estate
and hotels & restaurants.
Given pace of acceleration in new lending, careful monitoring
required
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Monetary and Financial Conditions
Source: Bank of International Settlements (BIS)
Outstanding stock of lending to the Irish economy by residency ($M)
0
50
100
150
200
250
300
350
400
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1999Q4
2000Q3
2001Q2
2002Q1
2002Q4
2003Q3
2004Q2
2005Q1
2005Q4
2006Q3
2007Q2
2008Q1
2008Q4
2009Q3
2010Q2
2011Q1
2011Q4
2012Q3
2013Q2
2014Q1
2014Q4
2015Q3
2016Q2
2017Q1
2017Q4
France Germany UK US Japan Belgium Cross-Border to GDP
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Housing Market
Large component of domestic sources of growth
Value of mortgage drawdowns up 22% YoY Q2
Completions increased by 34% YoY Q2
Continued upward pressure on
Prices – up 10.4% July YoY
Rents – up 8% Dublin and 6% outside Dublin
With supply still below levels of structural demand:
Upward pressure on prices/rents expected to continue
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Housing Market Affordability:
Corrigan et al. (2018):
Recent research on affordability issues in the Irish
housing market
Persistent affordability difficulties
Low income urban households renting privately
Finding it difficult to access home ownership
McQuinn (2018) updating earlier work:
Housing demand set to increase in coming years
Likely to exacerbate affordability issues
Policies to increase housing supply critical
Social and affordable housing
Case for public capital investment
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Assessment of the Public Finances
Strong tax receipt growth into 2018
Tax revenue increased by 5.1%
Corporation tax (+10.5%), Income tax growth
(+6.6%), VAT (+3.9%), Excise Duty (-8%)
General Government deficit/surplus (% of GDP)
-0.2% in 2018
+0.1% in 2019
Public debt set to fall (64.0% of GDP, 2019)
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Assessment of the Public Finances
Using GNI*
Irish debt remains high
Under “normal” circumstances, a contractionary budget would
be advisory.
However:
1. Given infrastructural (housing) deficits and
2. Increased possibility of a no-Brexit deal,
Under a neutral budgetary policy
A mild surplus is a real possibility in 2019
Adverse shock from no-deal Brexit scenario could be amplified
by a contractionary budget.
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External environment
At present:
The trade balance makes a significant contribution to growth
However, significant risks are looming
US trade policy & Brexit.
Long-standing result:
1 per cent decline in global GDP equal to 1 per cent decline in Irish
output.
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General Assessment
Economic activity still increasing significantly
Consumption and modified investment growing strongly
MNE related activity impacting the balance of trade
Global risks particularly elevated in 2019
Public finances:
Deficit in 2018 and minor surplus 2019.