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13 May 2011

Commission forecast for Ireland


Adjusting to the large imbalances built during the preceding boom years, economic activity in Ireland is slowly recovering. The crisis led to a dramatic deterioration in public finances.

In late 2010, as market confidence dwindled in the wake of large deficits, continued upward revisions of bank losses, and strong deposit outflows, the Irish authorities requested assistance from the European Union and the International Monetary Fund. A financial assistance programme providing for €85 billion in financing over three years was put in place in December 2010. The programme is subject to quarterly reviews of fiscal, financial and structural conditionality and is designed to bring the deficit to below 3 per cent of GDP by 2015, in line with the Council Recommendations to Ireland in the context of the excessive deficit procedure.

Elections earlier this year brought about a change in government, with a coalition of Fine Gael and the Labour Party. The new government has announced an ambitious strategy for the banking sector following the release of the 2011 vintage of the Prudential Capital and Liquidity Assessments (PCAR and PLAR, respectively). These "stress tests", which were well received as being based on a thorough and aptly conservative methodology, have resulted in an estimated capital need of €24 billion, of which about €19 billion is to be covered by public resources. This would bring the total amount of public support to the banks to around €65 billion, or 42 per cent of 2011 GDP.

In 2012, the deficit ratio is projected to decrease to 8.8 per cent of GDP taking into account broad consolidation measures of 2¼ per cent of GDP outlined in the National Recovery Plan for 2011-14. The expenditure-to-GDP ratio should decline by 1½, taking into account a nominal freeze of expenditure and rates together with consolidation measures of 1¼ per cent of GDP across main expenditure items. Demographic developments and the expiry of one-off measures would have a small expenditure-increasing effect. Despite further tax revenue increasing measures amounting to almost 1 per cent of GDP including carry-over effect of previous measures, the revenue-to-GDP ratio is expected to remain broadly unchanged given lower fees from the bank guarantee scheme and smaller dividends from state bodies after frontloading in 2011.

Full forecast (Ireland)



© European Commission


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