Ireland: Ireland Outlook for 2014-18

The country (Ireland) is situated in Western Europe and is occupying 5/6 of the island of Ireland in the North Atlantic Ocean and in west of Great Britain. Ireland has borders with United Kingdom for 360km.
The land in Ireland is mostly level to rolling interior plain surrounded by rugged hills and low mountains; sea cliffs on west coast. Irish land covers an area of 70280km².
The climate is a temperate maritime and modified by North Atlantic Current with mild winters, cool summers, consistently humid; overcast about half the time. Irishman(men), Irishwoman(women), Irish (collective plural) speak English (official) is the language generally used, Irish (official) (Gaelic or Gaeilge) spoken mainly in areas located along the western seaboard.

OVERVIEW

The Economist Intelligence Unit expects the Fine Gael-Labour Party coalition to serve its full term to early 2016. However, austerity and economic restructuring have eroded its popular support, which will exacerbate differences within the coalition.

We expect Ireland to exit the current EU/IMF bail-out programme when it expires at end-2013. However, its large fiscal deficit and public debt, which stood at 7.5% of GDP and 117.6% of GDP, respectively, at end-2012, will make it vulnerable to shifts in investor sentiment. A significant risk is that if the euro area crisis were to escalate again, the ensuing financial turmoil would hit Ireland. Real GDP is estimated to have contracted by 0.3% in 2013 owing to a sharp contraction in the first quarter. We expect a return to full-year growth from 2014. We expect the current account to continue to post substantial surpluses during the forecast period.

Political outlook

On October 5th the electorate voted by 52% to 48% to reject the government's proposal to abolish the Seanad (the Senate, the upper house of parliament). This was a setback for the prime minister, Enda Kenny. Although it has increased the risk of the coalition collapsing, we continue to believe that the coalition will serve its full five-year term to 2016.

Economic policy outlook

Ireland's debt-management agency-the National Treasury Management Agency (NTMA)-has pre-funded the government's borrowing needs until early 2015. This should help to smooth Ireland's exit from the bail-out at the end of 2013, but we continue to believe that the government will apply for a precautionary credit line.

Economic forecast

In the second quarter of 2013 real GDP expanded by a seasonally adjusted 0.4% quarter on quarter, following a fall of 0.6% in the first three months of the year. This was broadly in line with our expectations, so our estimate for a full-year contraction of 0.3% in 2013 has not changed.

Outlook for 2014-18

• The Economist Intelligence Unit's central forecast is that the Fine Gael-Labour Party coalition government is likely to serve its full five-year term to 2016, but political stability and government effectiveness will be significantly tested.
• The programme of fiscal austerity and reform agreed with the EU/IMF will continue to anchor economic policy beyond the expiry of the bail-out agreement at end-2013. We expect the government to seek additional support.
• Restructuring of the promissory notes used to bail out failed Irish banks in 2010 and maturity reprofiling of EU bail-out loans will help to improve Ireland's public debt sustainability. However, further action may be needed.
• The budget deficit narrowed to 7.5% of GDP in 2012, but is expected to remain close to that level in 2013 as a result of the weakness of the economy and the cost of liquidating Ireland's zombie banks.
• In 2016 and 2017 the deficit will still be close to 3% of GDP, the government's deficit reduction target for 2015. From 117.6% in 2012, public debt is forecast to peak at about 127% of GDP in 2014 before declining gradually in 2015-18.
• Real GDP is forecast to contract by 0.3% in 2013, owing to continuing austerity, tight credit conditions and weak demand in key export markets. A gradual pick-up is expected from 2014.
• We expect the current account to remain in surplus, and averaging about 2.9% of GDP in 2014-18, as domestic demand weakness persists and competitiveness gains revive goods and services export growth from 2014.

Review

• In an opinion poll carried out in late September support for the Labour Party had collapsed to a 25-year low of 6%.
• On October 5th the electorate voted by 52% to 48% to reject the government's proposal to abolish the Seanad (the Senate, the upper house of parliament).
• Public finance data for the first nine months of 2013 show that Ireland's fiscal position was well ahead of government targets.
• Having raised enough funding to last until early 2015, Ireland's debt-management agency-the National Treasury Management Agency (NTMA)- suspended all previously planned debt issuance for the remainder of the year.
• In the second quarter of 2013 real GDP expanded by a seasonally adjusted 0.4% quarter on quarter. On a year-on-year basis, real GDP contracted by 1.2%.
• Manufacturing output fell by 8.9% month on month in July 2013, reversing a similar increase in output a month earlier. Output in the services sector dropped by 0.8% in July, the first monthly decline since February.