The Irish economy has stabilised growing 2% in the 1st half of 2011. Virtually all analysts forecast growth of between 0.5%-1% this year.  The IMF, EU Commission, Irish Central Bank– all expect GDP growth of 0.5%-1% this year. Following three years of negative growth, the trend is now upwards[1].

The Government strategy for economic recovery allied to the EU/IMF programme is well in train, providing Ireland with the economic and fiscal certainty to navigate a path to economic growth.  This plan provides a clear roadmap for tackling the fiscal consolidation, banking recapitalisation and structural reforms that are essential for a return to sustainable economic growth.  We are moving rapidly on implementing this plan.
 
“The IMF was very pleased with the seriousness with which the Government and the Irish people generally were implementing the bailout plan. Ireland is exemplary in many ways…the performance of the Irish economy has been surprisingly positive. The growth figures came out better than expected, which is extremely reassuring…if the same approach (as Ireland’s) existed all over the programme countries; we would have a much, much better situation….” said IMF European director, Antonio Borges Oct 2011
 
Irish exports are at an all time high, driving this renewed growth.  In 2010 and the 1st half of 2011, economic recovery in international markets fuelled increased demand for Irish products and services.  Irish companies have widened their market reach, expanding into new international markets, and opening up new business.  Multinationals are increasing exports from their Irish operations.  Taken together, these all drive the return to growth in the Irish economy.

Significant competitiveness improvements are underpinning this return to export-led growth.  Year on year, Irish companies are becoming more competitive and more innovative.  Steep competition in global markets necessitates competitive improvements right across the value chain. Government funding and supports facilitate these improvements and this in turn helps Irish companies to win new market share.

Leading global companies continue to invest in Ireland – a real barometer of international confidence in Ireland as a great place to do business.  Ireland is still the destination of choice for many of the world’s leading firms.  Almost 1,000 global companies – including household names such as Google, Twitter, eBay, Intel and Facebook – have chosen Ireland as the hub of their European networks.

International rankings show Ireland punches well above its weight globally position in world competitiveness rankings places us firmly in the top ten [2] - 1st for corporate taxes that encourage entrepreneurial activity; 1st for availability of skilled labour; 4th for the productivity of our labour force and 5th for overall productivity; 3rd for the availability of financial skills; 8th for number of qualified engineers; 7th for flexibility and adaptability of people and 8th for percentage of population with 3rd level education.
 

Background – what happened the Irish economy.

The Irish economy has experienced an extremely sharp downturn between 2008 and 2010, following strong economic growth in the late 1990s and 2000s.

• The economy became over-reliant on the construction industry and this, coupled with low interest rates and irresponsible domestic bank lending, led to a ‘property bubble’.
  
• The Irish Government’s tax receipts became largely dependent on revenues generated from property transaction taxes, and taxes generated by consumer spending fuelled by cheap and easily accessible credit.
  
• Real GDP declined by 3.5 and 7.6 per cent respectively in 2008 and 2009 and by a further 1% in 2010.

External Assistance:  Joint EU/IMF assistance programme plots path to sustainable economic growth…
 
A financial support facility with the ECB (European Central Bank), EU Commission and the IMF was agreed November 28th, 2010 and provides certainty to ensure funding is delivered to Ireland, removing the requirement to go to the Bond markets in the medium term.
85 billion of financial support over 3 year period: Based on strong conditionality drawn from Ireland’s own Programme
Key objectives:

• Return our economy to sustainable growth
  
• Fiscal consolidation (restore order to public finances)
  
• Ensure that we have a properly functioning healthy banking system

Main objectives of strategy based on 4 essential elements:

1. Restoring sustainability to public finances;
   
2. Repairing the banking system;
   
3. Improving competitiveness;
   
4. Support the protection and creation of jobs

Irish Government fully committed to:

• Reducing deficit below 3% of GDP by end-2015. The deficit was 12% in 2010, forecast at 10% in 2011
  
• Aggregate fiscal adjustment for 2011 & 2012 set out in Joint EU/IMF Programme
• 
  The stock of total public debt is expected to peak at 118% of GDP in 2013 before declining to 111% by 2015.
  

Radical restructuring of banking sector: Anglo and INBS are being wound down over a reasonable period of time. The future profile of the Irish banking sector will feature 2 domestic universal full-services banks, which will re-focus their operations to areas which will support economic recovery.
 
The Irish economy has stabilised, and virtually all analysts expect the economy to expand this year.

The economy is showing signs of recovery.  Following three years of contraction, the latest data clearly show that the economy has stabilised and is on a growth path.

• Virtually all analysts expect the economy to expand this year.  The IMF, EU Commission expect GDP growth of 0.5%-1%.
  
• Growth in the 1st half of 2011 outperformed expectations.  
  
• In the 1st half of 2011, net exports (exports less imports) grew 13.2%. 
  
• In the three quarters to the end of September 2011, tax revenue was 8.7% ahead of the same period in 2010. This is largely due to a 25% increase in income tax returns. This demonstrates growing stabilisation in exchequer returns.
  
• Reflecting growing market confidence in the Irish economy, the interest rate on Irish government bonds has fallen from a peak of 14.07% in July to below 8% in October. While interest rates on Irish government debt are still very high, this fall makes Ireland one of the best performing government debt markets in the Eurozone. (Asian funds in particular have begun to buy Irish bonds)

Importance of Exports to a Small Open Economy.

Due to the small size of Ireland’s domestic economy, Irish companies must export to create sustainable employment and wealth creation at home.
 
Employment:

• Exports and Tourism directly account for over 25% of employment in Ireland.

Generating Income:

• Exporting companies spend approximately €38bn in the Irish economy annually while tourists generate revenue of over €4.6bn on an annual basis. Together this totals approximately 27% of Ireland’s GDP.

 Irish exports are at an all time high, driving growth.

• An economic recovery in international markets saw demand for Irish goods and services grow last year, particularly in the services sectors of computer services and business services and in the pharmaceutical and agri-food sectors.
  
• In 2010 exports grew by 9.4%. Goods exports grew by 7.7% while services exports grew by 11.5%. All losses made in 2008 and 2009 have been recovered in 2010; in fact exports grew to their highest ever level; 4.1% above the previous peak in 2007.
  
• Irish companies are shifting their main focus away from the traditional UK market towards new export opportunities in North and South America and Asia. This increases the potential for continued export growth as our traditional markets enter another period of economic volatility.
  
• Exports of goods and services to the US grew by 15% in 2010. Exports to the UK grew by 3.9% and to the Eurozone by 3.1%. While exports of goods and services to the BRIC economies (Brazil, Russia, India, China) increased by 17.5% to over €7bn.
  
• Exports (goods and services) from Ireland ($211bn) are similar in value to exports from India ($250bn) and greater than the exports of Australia ($195bn) or Brazil ($179bn).

Source: World Trade Organisation
 

Significant competitiveness improvements are underpinning this return to export-led growth.

• Ireland’s price competitiveness ranking in the World Competitive Rankings dramatically fell from 49th place in 2008 to 2nd place in 2011 reflecting a sustained period of reducing costs.
  
• Major improvements in competitiveness have taken place with the knock on effect of making Irish products more attractive in international markets.
  
• Consumer prices have fallen; in our competitor countries consumer prices have remained on an upward path.
  
• Wages and other costs have adjusted to the change in labour market conditions. European Commission forecasts anticipate that Irish unit labour costs will fall by a cumulative 8½% over the period 2009 to 2012. This decline reflects a recovery in productivity coupled with a decline in compensation per head.
  
• Government policy has aided in this competitiveness adjustment – public sector wages have been reduced by an average of nearly 15%.

Ireland continues to attract inward FDI, Leading global companies continue to invest in Ireland

• Ireland is still the destination of choice for many of the world’s leading firms.  Almost 1,000 companies – including household names such as Google, eBay, Intel and Facebook – have chosen Ireland as the hub of their European networks.
  
• Eight of the top ten global medical technology companies have a manufacturing base in Ireland.
  
• Eight of the top ten pharmaceutical companies have operations in Ireland.
  
• Companies investing in Ireland for the first time rose by 20% in 2010and included the likes of Telefonica, Warner Chilcott, LinkedIn, EA, Riot Games, Genband, Aspect and FC Stone.

[1] Ireland’s 2011 growth rates for Ireland: IMF (0.5% September 2011), Irish Central Bank (1% October 2011 ), European Commission (0.6% Spring 2011)

[2] World Competitiveness Report 2011 *Figures as at September 2011