- Emerging data suggest that the outlook for the global economy in 2023 may not be as pessimistic as at the time of the Department’s autumn forecasts; however, the global outlook remains fragile, with heightened uncertainty a key feature in the global environment.
- Modified Domestic Demand (MDD) is projected to moderate to 2.1 per cent in 2023, following a robust year of post-pandemic growth in 2022, an upward revision of just under 1 percentage point from the autumn forecasts. MDD growth of 2½ per cent is expected for 2024.
- Having reached multi-decade highs in the second half of 2022, it is now expected that headline inflation will average 4.9 per cent this year on the back of an easing in energy prices, however, non-energy inflation will remain elevated.
- Despite headwinds, the labour market has remained remarkably resilient with record numbers in employment and the unemployment rate standing at 4.3 per cent in March; below most measures of full employment.
- An annual average unemployment rate of just under 4½ per cent is expected for this year.
- Over the second half of this decade, output – as measured by GNI* – is projected to grow at an average annual rate of 2¼ per cent, a moderation on recent decades owing in part to an ageing population.
- A General Government Surplus of €10 billion is in prospect for this year (3.5 per cent of GNI*). However, if ‘windfall’ corporation tax receipts are excluded, an underlying deficit would be in prospect.
- The Debt-to-GNI* ratio is projected to fall to 79 per cent this year and to decline to 75 per cent next year although the level of debt is set to remain elevated at over €224 billion.
The Minister for Finance, Michael McGrath TD, and the Minister for Public Expenditure, National Development Plan Delivery and Reform, Paschal Donohoe TD today (18thMarch) published the Government’s Stability Programme Update for 2023. This document sets out macroeconomic and fiscal forecasts for the periods 2023-2030 and 2023-2026 respectively. The macroeconomic forecasts underpinning the SPU were endorsed by the Irish Fiscal Advisory Council on 6th April (a legal requirement).
Commenting on the figures, Minister McGrath said:
“Despite multi-decade high inflation rates and heightened global uncertainty, the Irish economy has proven remarkably resilient, most notably in the labour market where the unemployment rate is at a near-record low. At the same time the mobilisation of government supports helped mitigate, to some extent, the impacts of inflationary pressures on households and businesses over the winter months.
“With energy prices in retreat, it now appears as though inflation, absent any further energy price shock, is on a downward trajectory, though it will remain elevated throughout this year. Headline inflation is expected to average 4.9 per cent this year, before returning to 2½ per cent in 2024. My Department is now projecting Modified Domestic Demand growth this year of 2.1 per cent – just under 1 percentage point higher relative to the Department’s autumn forecasts – and growth of 2½ per cent for 2024. Nonetheless, there is a considerable margin of error around these forecasts with the outlook for the global economy remaining fragile as noted by the IMF last week.
“My Department has also set out medium-term forecasts to 2030 for key macro-economic variables in order to support the medium-term orientation of budgetary policy. Beyond the short-term, economic activity is assumed to evolve in line with the economy’s supply capacity. Over the second half of this decade, output – as measured by GNI* – is projected to grow at an average annual rate of 2¼ per cent, a moderation on recent decades owing in part to an ageing population.
On the public finances, Minister McGrath said:
“Regarding fiscal developments, we are projecting a surplus of €10 billion for this year, the equivalent of 3.5 per cent of national income. This is based on the assumption of tax revenue amounting to almost €89 billion, a growth rate of almost 7 per cent. While this is, of course, very much welcome, the headline surplus this year is heavily dependent on volatile ‘windfall’ corporate tax receipts. Excluding the impact of these receipts, estimated at almost €12 billion this year, an underlying deficit of €1.8 billion is projected for this year. This is a better metric for assessing the resilience of our public finances.
“From a fiscal perspective, serious challenges lie ahead: an ageing population; risks to the sustainability of corporate tax receipts; de-carbonisation and digitalisation; as well as the fallout for economic activity from rising geopolitical tensions. For example, by the end of this decade, it is estimated that additional age-related expenditure of between €7 and €8 billion per annum, relative to the level of outlays at the beginning of the decade, will be required simply to deliver existing levels of public service. Moreover, we are facing into these challenges from a position of high public debt, with the cost of borrowing increasing. That is why I will shortly be presenting proposals for a longer term focused national reserve fund. Work on such a fund is already at an advanced stage.
“We are hopefully emerging from the worst of the cost-of-living crisis, though immediate risks remain. However, I am confident that the Irish economy remains resilient especially in light of our robust labour market. The Government will continue to protect those most adversely impacted by cost of living pressures, while managing the public finances in a way that equips the State to address the fiscal challenges in the years ahead.”
Commenting on the publication, Minister Donohoe said:
“Today’s publication marks an important point in our budgetary cycle. It allows us to take stock of the significant ongoing investment in vital public services and infrastructure. It also provides us with the opportunity to look towards the future, outlining fiscal plans out to 2026.
Supports put in place by Government have allowed our economy and society to remain resilient to the challenges we have faced over the last past three years. Over €40 billion has been provided since 2020 to support our households, businesses and public services with the challenges posed by Covid-19, Brexit, the war in Ukraine and the recent increases in the cost of living. These supports have ensured our economy has returned to strength, with unemployment now forecast at 4.4 per cent for 2023, the lowest annual average rate since 2001.
Core expenditure has increased alongside these exceptional supports and in line with our Medium Term Expenditure Strategy. This has ensured investment in our schools, transport systems, health and childcare sectors. Over the past year, we have seen significant progress in the rollout of the National Development Plan (NDP) with capital investment in vital infrastructure rising further to over €12 billion this year. I also recently announced a package of significant reforms that are aimed at enhancing project delivery for the NDP in 2023 and beyond.
Looking to the future, improving living standards and supporting economic growth are key priorities. To support this, the Government will increase annual expenditure to almost €100 billion by 2026. This investment will deliver sustainable increases in our public services in line with the needs of our changing population under the Medium Term Expenditure Strategy, with continued capital investment in the projects that make a difference to our lives through the National Development Plan.
Over the coming months I will be reviewing our plans ahead of the Summer Economic Statement, which will set out the parameters for Budget 2024.”
Stability Programme Update 2023
ENDS
Notes to Editors:
1. The Stability Programme Update is a legal requirement: all Member States must submit to the European Council and Commission by end-April each year.
2. The document is prepared based on existing government policies, with no new policies included.
3. The Department produces two macroeconomic and fiscal forecasts each year, a spring forecast with the Stability Programme Update in April and an autumn forecast with the Budget.
The macroeconomic analysis and forecasts contained in this document are based on data available to end-March 2023. The fiscal projections are based on data as of mid-April. The presentation provided to the IFAC is available on the Department of Finance website.
https://www.gov.ie/en/publication/026eb-spu-2023-presentation-to-ifac-31-march-2023/