Ireland's Journey To Recovery Continues Slowly But Steadily

This fact book on Ireland gives a brief overview of the main aspects of the Irish economy. It includes many informative charts and tables. The next fact book to be published is on Portugal. The idea is that these fact books can be used as a quick reference point for key ratios, etc.

The Irish economy’s long journey to recuperation continues after the biggest boom and bust property bubble in the EU. House prices have dropped by more than 50% since the peak in 2007 but there are signs indicating that the bottom has been reached. Three out of the last four monthly releases on house prices have in fact been increases.

The government deficit escalated during the financial crisis and forced Ireland into a programme of austerity. Ireland suffered a collapse of confidence as the twin costs of a rising deficit and expensive bank bailout were increasingly seen as being unsustainable, forcing Ireland to go to the EU/IMF for support. Since then, there have been increasing signs of stabilisation and in particular the current positive Irish PMIs attract much attention.

It is also worth noting that Fitch recently upgraded the outlook on Ireland from negative to stable. Domestic demand continues to be constrained as the government implements a harsh austerity plan under the watchful eye of the EU/IMF, while the household sector continues to deleverage aggressively. Ireland’s government deficit is projected to remain elevated in 2012-13, so further austerity measures will be needed to ensure the deficit is brought below 3% of GDP by 2015.

Ireland’s large export sector, which stands above 100% of GDP, continues to perform well. The sector is dominated by large, foreign-owned multinationals, with the majority coming from the US to access EU markets. Ireland has a good spread of firms, with the most important sectors being services, pharmaceuticals and food. The inward flow of these firms has been boosted by Ireland’s success in maintaining the very low 12.5% corporation tax rate.

Since Ireland is an export-driven economy, the future recovery depends to a large degree on how the global economy evolves over the next couple of years. Irish labour costs have adjusted significantly and ULC has now dropped more than 20% since the peak.

Ireland has the youngest population in Europe, with a median age of 34.7 years (2011). However, the return of net emigration due to high unemployment has sharply lowered the rate of population growth. Unemployment remains high but stable at over 14%, but has tripled during the financial crisis. The rapid growth of short-term unemployment is now seeping through to long-term unemployment. The high unemployment has lowered wage pressure and hence also inflation expectations.

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