NEWS Release - Ireland: Exceptional Recovery
Irish economy recovered strongly, but recovery is incomplete - Priorities: more shock resilience, structural change, sharing of recovery results in society - Banking: legacy bad loans, profitability still an issue
The Irish economy has got back on its feet, and its main task is to keep its stance solid by completing the recovery and spreading its fruits among the population. IMF News sat down with Zuzana Murgasova, mission chief for the annual economic assessment, and Daniel Hardy, mission chief for the periodic financial stability assessment, to discuss the economic performance and outlook of the country.
IMF News: How did the Irish economy fare over the last year, and what are the medium-term prospects?
Murgasova: The Irish economy has made an exceptional recovery over the past few years and output has surpassed its pre-crisis level. The already-astounding growth rate of 7.8 percent in 2015 has been recently sharply upgraded by the Irish Central Statistics Office to 26.3 percent. This headline number is heavily affected by the operations of a number of multinational companies which caused an upward level shift in output, but had a limited impact on the true underlying developments of the Irish economy. Yet, there are a number of other indicators that confirm Ireland’s robust rebound. For example, private consumption grew strongly (4.5 percent in 2015) on the back of rising employment. At the same time, the unemployment rate fell to 7.8 percent in June, while inflation has remained very subdued. Public finances have continued to improve, reflecting buoyant tax revenue, and government’s debt-to-GDP ratio has declined rapidly.
IMF News: The UK’s decision to leave the EU is a major risk to the outlook. How can it influence Irish growth?
Murgasova: Ireland’s positive economic performance is expected to continue, despite the fallout from the UK vote to leave the EU. Nevertheless, in light of its tight economic and financial linkages with the UK, Ireland is likely to face some difficulties, the severity of which, however, is hard to gauge at this stage. It will depend crucially on the future relationship between the UK and the EU, especially regarding trade, financial flows, and movement of labor.
Hardy : The authorities undertook a very comprehensive contingency planning exercise in advance of the referendum in the UK to identify all the linkages that might be affected and how to mitigate possible adverse effects.
On the financial sector, one obvious connection is though the banks and insurers doing business in the UK. A recession in the UK affects them directly and through a knock-on effect from Irish exporters to the UK. In the wake of the referendum, market prices of banks and financial institutions of Ireland have taken a tumble. But in the longer run, Brexit would not necessarily affect the Irish financial system a great deal, given that the economy as a whole is now quite diversified.
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