Ireland: 2015 Article IV Consultation-Staff Report; Press Release
Ireland’s recovery has been robust. Growth is estimated at about 5 percent in 2014, although offshore manufacturing of exports appears to have made a significant contribution. The unemployment rate has declined to 10½ percent, down from a peak of 15 percent three years ago, with long-term unemployment falling notably though still unduly high. Private balance sheet health is improving and enterprise profitability has risen, yet distressed loans remain high and arrears are increasingly prolonged. Property markets are bouncing back rapidly. Commercial real estate values are up 30.7 percent y/y in 2014, though they still remain about 30 percent below pre-boom levels. Values were bolstered by record transaction volumes with over one-third reflecting foreign investment inflows. At the same time, house prices rose 16.3 percent y/y, as fast as the increases during the boom period, though they are still 38 percent below peak. The priority is to ensure that solid growth and job creation is sustained. Near-term growth prospects appear bright at about 3½ percent y/y in 2015. Solid growth needs to be maintained to further reduce unemployment. To achieve that Ireland should: • Balance its budget over the cycle through a phased and steady adjustment. Fiscal balance will ensure that growth erodes Ireland’s high public debt burden. An adjustment phased over three years would limit the drag on recovery. • Implement a policy mix to achieve steady fiscal adjustment that protects growth potential. Both the expenditure and revenue sides can support adjustment and help create room to rebuild public investment. Rigorous assessment of the quality of capital projects is needed to ensure this investment helps to avoid growth bottlenecks. • Facilitate a revival of financing flows in support of investment and recovery. Cases of prolonged loan arrears need to be tackled more vigorously. Banks should address capital quality issues early to safeguard lending capacity. Scope to further develop nonbank financing should be explored, especially risk capital for SMEs. • Strengthen the financial resilience of banks and borrowers to shocks while tempering Ireland’s property cycles. Recent regulations of mortgage origination are welcome. Supervision should also ensure bank exposures to commercial property risks are appropriately contained. Reforms to improve the performance of the construction sector and the depth of rental property markets would help temper property cycles.
Year of publication: |
2015-03-25
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Institutions: | International Monetary Fund (IMF) ; International Monetary Fund |
Subject: | Article IV consultation reports | Economic recovery | Economic growth | Fiscal policy | Bank supervision | Macroprudential Policy | Economic indicators | Debt sustainability analysis | Staff Reports | Press releases | Ireland |
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