Growth forecasts upgraded
The European Commission is the latest in a line of economic forecasters to update their outlook on the Irish economy in the last month. In their Autumn update they are forecasting growth of 4.6 % in 2014, recognising that growth is broadening and gathering momentum. They point in particular to the importance of Ireland’s trade links with the US and UK markets in providing support at a time when EU growth is subdued.
The labour market continues to improve
The unemployment rate has fallen for the 29th month in October and is now down to 11.0% (from 12.4% in Oct 13). The Irish unemployment rate is now below the Euro Area average. The excellent labour market performance is showing up in revenue figures with income tax up 8.2% year on year in the first ten months of 2014. The Department of Finance expecting employment growth of 2.4% next year and 1.9% thereafter.
Public Finances outlook has improved
Overall the Government is on track to beat its fiscal target for the 4th year in 2014 with the deficit now forecast at 3.7% of GDP. Gross debt to GDP is forecast to come down to 110.5% this year from 123.3% last year. This improvement is being driven by stronger than expected growth as well as ongoing fiscal discipline. In the first ten months of 2014 the tax take was up 9.4% on the same period of 2013. Looking to the drivers we can see that the improving labour market and housing market are having an impact: income tax (+ €998mn, 8.2%), VAT receipts (+€703mn +8.2%), Stamp duty (+ €339mn, +29.2 %( and Corporation tax (+187mn, 6.8%). Expenditure control has been maintained with total expenditure -1.2% in the year to Oct. Taken together his has led to ongoing improvements in the exchequer deficit, which stood at €8.5bn at end-Oct 2014 down from €10.5bn in 2013.
The NTMA is taking advantage of the positive dynamics, through for example this month’s sales of €3.75bn of 15 year bonds at a yield of 2.5%. This is the 1st longer-dated bond issued since 2009, when the yield stood at 5.5%, and is a vote of confidence in the medium term direction of the Irish economy.
Key Forecasts: % change
Source: Department of Finance, October 2014
 Underlying general government balance
Breda O'Sullivan, Economist, IDA Ireland
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