This updated Stability Programme is framed against a prospect of strong economic
growth, underpinned by a supportive international economic environment. Economic
growth is expected to moderate over the forecast period, reflecting the emergence
of supply-side, particularly labour, constraints.
GNP growth in 2000 is now estimated at 8.6%, compared with a forecast of 6.3% at
the time of last year's Budget. The economy has now expanded by an average
of 7.8% since 1993. GNP growth of 7.4% is forecast for 2001 moderating to
5.1% by 2003. Accordingly, Ireland's GNP per head should continue to converge
to that of our more prosperous EU partners.
Recent and ongoing investment growth promises to support a continued expansion in
exports over the period ahead. Export growth of 11.5% is forecast for 2001.
On the basis of some limited deterioration in our relative costs, export growth
is projected to slow to 8.1% by 2003.
Employment growth is expected to moderate to an average of 2.5% over the period
to 2003. Personal consumption is forecast to ease in tandem, with an average
annual increase of 6.4% projected to 2003.
Inflation increased by more than expected during 2000. The headline Consumer
Price Index rose by an estimated 5.5% compared with 1.6% in 1999. With the
labour market expected to remain tight, domestic wage pressures are unlikely to
diminish over the period to 2003. However, external factors will have a reduced
impact on prices next year as the effects of recent interest rate, oil price and
exchange rate developments unwind. Taking this into account, inflation is
forecast to fall to 4.5% next year, and to 2.5% by 2003.
The inflation projections are based, inter alia, on the technical assumption of
unchanged interest and exchange rates - and key commodity prices - from end-November,
2000 levels.
1.1 Introduction
It is estimated that average non-agricultural earnings are running 7¼%
ahead of 1999. While prices are also higher, this average increase combined
with reductions in personal taxation means a substantial increase in disposable
incomes for employees generally.
This document updates Ireland's Stability Programme and includes a new set of macroeconomic
projections out to 2003. It takes account of the measures adopted in Budget
2001, the new National Agreement with the social partners - the Programme for Prosperity
and Fairness (PPF) - and the National Development Plan 2000-2006.
This Update has been prepared in conjunction with Budget 2001 and is being presented
to Dáil Éireann on Budget Day, 6 December 2000. As such it also provides an
economic background to Budget 2001. It has been prepared in accordance with
Council Regulation 1466/97, which sets out the rules covering the content of Stability
Programmes.
The Stability Programme Update is organised as follows :
· Chapter 1 reviews recent economic performance
and presents macroeconomic projections for the period 2001-2003.
· Chapter 2 sets out the Government's budgetary
policy.
· Chapter 3 details structural challenges facing
the economy and the Government's policy responses to them.
1.2 Economic Review: 2000
A year ago most forecasters expected the economy to slow in 2000, but it has
exceeded expectations once again. It is now estimated that real GNP will expand
by 8.6%, compared with the Department of Finance's forecast of 6.3% at the time
of last year's Budget. A stronger international economy, the weak euro and
more buoyant domestic demand conditions all contributed to this better performance.
The economy has now grown in GNP terms by a remarkable average of 7.8% since 1993.
Table 1 - Economic and Budgetary Indicators: 1994-1999
|
|
1994
|
1995
|
1996
|
1997
|
1998
|
1999
|
|
% Volume Change
|
|
|
|
|
|
|
|
|
|
GNP
GDP
Personal consumption
Public consumption
Fixed investment
Exports
Imports
Current Account (% GNP)
|
6.3
5.8
4.4
4.1
11.9
15.1
15.5
3.2
|
8.2
9.7
4.3
2.8
12.7
20.0
16.4
3.2
|
7.4
7.7
6.3
3.1
16.4
12.2
12.5
3.7
|
9.3
10.7
7.4
5.7
17.9
17.4
16.8
3.5
|
7.8
8.6
7.8
5.1
15.5
21.4
25.8
1.1
|
7.8
9.8
7.7
5.2
12.9
12.4
8.7
0.8
|
|
Consumer Prices (% change)
GDP Deflator (% change)
|
2.4
1.7
|
2.5
3.0
|
1.6
2.3
|
1.5
4.4
|
2.4
5.8
|
1.6
3.8
|
|
Unemployment (% labour force)
Employment (% change)
Employment ('000s)
|
14.1
3.6
43
|
12.1
4.6
57
|
11.5
3.8
49
|
9.8
4.5
62
|
7.4
5.7
82
|
5.5
6.4
97
|
|
General Govt. Balance
Deficit(-)
Surplus(+) as (% GDP)
|
-2.0
|
-2.6
|
-0.4
|
0.7
|
2.1
|
3.9[1]
|
|
General Govt. Debt (% GDP)
|
90.5
|
83.1
|
74.3
|
65.1
|
55.0
|
50.1
|
ESA95 Basis
Sources: CSO and Department of Finance