Ireland A Remarkable Economic Recovery? Corden Lecture, University - PowerPoint PPT Presentation

Ireland – A Remarkable Economic Recovery? Corden Lecture, University of Melbourne, 22 March 2016 Frances Ruane Research Affiliate, Economic and Social Research Institute, Ireland Honorary Professor, Trinity College, Dublin

The Great Recession • Impact on Ireland • Economic • Social / Psychological / Political • Impact on Europe / Euro Area • Short term • Medium term • Long term

Outline 1. Historical backdrop 2. The crisis in Ireland 3. Ireland’s economic recovery in context 4. Key drivers of the Irish recovery? 5. Legacy challenges from the crisis? 6. Possible lessons for EU members? 7. Possible lessons for other countries?

1. Historic Backdrop

1.1 Picture of Ireland Today Demography Population 4.6m (2014) Non-native born share 12% Labour and Skills Unemployment rate 8.8% (2016); 15.1% (2011) Education levels Tertiary 50% Key Sectors ICT Medical Devices Pharma Food & Drink Key Markets EU:58% UK:15% USA:23%

1.2 Key Political Economy Events 1921 - 2001 • Open market with UK 1921 • Protection and ban on FDI 1932 • Move to Open Economy 1950s / 60s • Promote exports • Promote export platform FDI • Reduce tariffs incrementally • Key Treaties • Anglo-Irish Trade Agreement 1965 • Membership of EEC 1973 • Member of Euro Area 1997

1.3 Backdrop • Strong growth performance • Immediately pre-crash (+) • Immediately pre-crash (-)

1.4 Irish Growth Rates 1970 – 2015 Average Five Year Growth Rates 10 9 8 7 6 % 5 4 3 2 1 0 70-75 75-80 80-85 85-90 90-95 95-00 00-05 05-10 10-15 Irish GNP Average Irish GNP Source: Irish Fiscal Advisory Council ; Data : CSO, National Income and Expenditure Accounts for historical data. Estimates for 2015 come from Department of Finance Budget 2016 and EC Autumn 2015 forecasts. January 2016

1.5 Strong Pre-Crisis (+) Fiscal Position Primary Fiscal Balance, % GDP Government Debt, % GDP, 140 1995 - 2015 8% 2000 - 2015 120 6% 2006 4% 100 2% 80 0% % of GDP % GDP -2% 60 -4% -6% 40 -8% 20 2007 -10% -12% 0 EU Rule < -3% EU Rule < 60% Source: Department of Public Expenditure and Reform Data: Source : Irish Fiscal Advisory Council calculations; Data: Department of Finance including Budget 2016 projections Department of Finance .

1.6 Pre-Crisis (+) Low Unemployment Rate Ireland's Unemloyment Rate: 2004-2015 (Q2) 16.0 14.0 12.0 10.0 2015 8.0 6.0 4.0 2004 2.0 0.0 Q2 04 Q2 05 Q2 06 Q2 07 Q2 08 Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14 Q2 15 Source: Economic and Social Research Institute; Data : CSO Quarterly National Household Survey Note: Rate is calculated on the basis of individuals aged 15-74.

1. Pre-Crisis (-) Unsustainable Tax Pattern Composition of Tax Revenues 1997 - 2014 Income Tax VAT Excise Corp’n Tax Capital Other 100% 90% 80% percentage of total tax 70% 60% 50% 40% 30% 20% 10% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1997 2014 Source : Irish Fiscal Advisory Council ; Data : Dept of Finance

€ million -200,000 -150,000 -100,000 100,000 150,000 200,000 -50,000 50,000 Source : Irish Fiscal Advisory Council; Data : Central Bank of Ireland 0 2003M01 2003 2003M05 1. Pre-Crash (-): Growth of Household 2003M09 2004M01 2004M05 2004M09 2005M01 2005M05 Indebtedness from 2003… 2005M09 2006M01 2006M05 2006M09 Loans 2007M01 2007M05 Deposits 2007M09 2008M01 2008 2008M05 Deposits 2008M09 2009M01 2009M05 2009M09 2010M01 2010M05 2010M09 2011M01 Loans 2011M05 2011M09 2012M01 2012M05 2012M09 2013M01 2013M05 2013M09 2014M01 2014M05 2014M09 2015M01 2015M05 2015M09 2016 2016M01

2. Key Elements in the Irish Crisis Banks Financial Construction Markets Crisis Weak Fiscal Regulation Revenues Households / SMEs

2.1 Impact of Euro on Interest Rates, 1992-2015 1 2 3 4 5 6 Source : Presentation by German Council of Economic Experts to the Institute of International and European Affairs Dublin, March , 2016 Data: Eurostat

2.2 Ireland’s Loss of Creditworthiness 10-Year Bond Yield, Ireland and Germany, 14 Monthly Averages, January 1993-July 2011 Ireland 12 10-Year Bond Yield 10 8 6 4 2 Germany 1993 2015 0 1993Jan 1995Jan 1997Jan 1999Jan 2001Jan 2003Jan 2005Jan 2007Jan 2009Jan 2011Jan 2013Jan 2015Jan Source : Irish Fiscal Advisory Council. Data : ECB

2.3 Irish borrowing from Euro-system in Crisis 180 160 Central Bank of Ireland “Other Assets” plus “Other Claims on Euro 140 Area Credit Institutions” [ELA] 120 100 € billion Borrowing from the Euro- system for Monetary Policy 80 Operations, Domestic Banking Group 60 40 2015 2003 20 - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source : Irish Fiscal Advisory Council. Data : Central Bank of Ireland

2. Outcome: Full blown Crisis 2011 Banks Financial Construction Markets Government Fiscal Weak Revenues Regulation Households /SMEs

3. Irish Recovery in Context 3.1 Irish and EU-15 growth rates 3.2 GDP 3.5 Exports 3.4 Domestic demand 3.5 Employment 3.6 Irish unemployment and migration 3.7 Legacy debt

3.1 Ireland Vs EU-15 Growth 1970 – 2015 Average Five Year Growth Rates 10 9 8 7 6 % 5 4 3 2 1 0 70-75 75-80 80-85 85-90 90-95 95-00 00-05 05-10 10-15 Irish GNP EU 15 GDP Average Irish GNP Average EU 15 GDP Source: Irish Fiscal Advisory Council ; Data : CSO, National Income and Expenditure Accounts for historical data. Estimates for 2015 come from Department of Finance Budget 2016 and EC Autumn 2015 forecasts. January 2016

3.2 GDP Index 2007 - 2015 120 120 GDP GDP * 110 110 Ireland 100 100 2007=100 2007=100 90 90 80 80 70 70 Greece 60 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Ireland Ireland Greece Spain Portugal Source : Irish Fiscal Advisory Council; Data : EC AMECO database

3.3 Exports Index 2007 - 2015 150 150 Exports Exports 140 140 Ireland 130 130 120 120 2007=100 2007=100 110 110 100 100 90 90 Greece 80 80 70 70 60 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Ireland Ireland Greece Spain Portugal Source : Irish Fiscal Advisory Council; Data: EC AMECO database

3.4 Domestic Demand Index 2007 - 2015 105 105 Domestic Demand Domestic Demand 100 100 Ireland 95 95 90 90 2007=100 2007=100 85 85 80 80 75 75 70 70 Greece 65 65 60 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Ireland Ireland Greece Spain Portugal Source : Irish Fiscal Advisory Council; Data: EC AMECO database

3.5 Employment Index 2007 - 2015 105 105 Employment Employment 100 100 95 95 Ireland 2007=100 90 90 2007=100 85 85 Greece 80 80 75 75 70 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Ireland Ireland Greece Spain Portugal Source : Irish Fiscal Advisory Council; Data : EC AMECO database

3.6 Gradual Decline in Unemployment Rate Ireland's Unemployment Rate: 2004-2015 (Q2) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2004 2015 2.0 0.0 Q2 04 Q2 05 Q2 06 Q2 07 Q2 08 Q2 09 Q2 10 Q2 11 Q2 12 Q2 13 Q2 14 Q2 15 Source: Economic and Social Research Institute; Data: CSO Quarterly National Household Survey Note: Rate is calculated on the basis of individuals aged 15-74.

Note : Gross flows were not available earlier than 1987 Source: Irish Fiscal Advisory Council; Data: Central Statistics Office Thousands 100 120 -80 -60 -40 -20 20 40 60 80 0 1951 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 C ONTRIBUTIONS TO CHANGE IN N ET M IGRATION 1961 1962 1963 1964 1965 1966 1967 1968 1969 3.6 Migration 1970 1971 1972 1973 1974 1975 Net Migration 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1989 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2007 2006 2007 2010 2008 2009 2010 2011 2012 2014 2013 2014

Thousands -150 -100 100 150 200 -50 50 0 1951 1952 1953 1954 1955 1956 1957 1958 1959 Immigrants 1960 C ONTRIBUTIONS TO CHANGE IN N ET M IGRATION 1961 Source: Irish Fiscal Advisory Council; Data: Central Statistics Office 1962 1963 1964 Note : Gross flows were not available earlier than 1987 1965 1966 1967 1968 1969 3.6 Migration 1970 1971 1972 1973 1974 1975 Emigrants 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Net Migration 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2007 2006 2007 2008 2009 2010 2011 2012 2013 2014

3.7 Legacy Debt Comparisons Debt to GDP Ratio 1991-2014 Primary Fiscal Balance 1991-2014 Greece Ireland Ireland -3% 60% Greece Source : Presentation by German Council of Economic Experts to the Institute of International and European Affairs Dublin, March , 2016 Data : Eurostat

4. Key Drivers of Irish Recovery? 1. Scale of Ireland’s internationalisation 2. Support from European Union 3. Return of local confidence 4. Relative political stability 2007-2014...