Remarks by Angel Gurría
8 March 2018, Dublin, Ireland
(As prepared for delivery)
Minister Donohoe, ladies and gentleman,
Ten years ago the crisis and the collapse of the property boom hit Ireland harder than most. We all remember those images of unsellable ghost estates, headlines announcing the first recession in over 20 years, and stories of Irish people starting to see emigration as the only solution again.
But by 2016, the tone had changed completely and we were hearing about how Ireland was growing as fast as China and how hard it was to find property to buy.
It’s a remarkable turnaround, and our Economic Survey shows that recovery in Ireland’s economic output since the crisis has been stronger than in any other OECD country. There has been a rapid reduction in the unemployment rate from above 15% in early 2012 to around 6% today and domestic demand is growing at around 5%, while inflation is still only 0.2%.
The overall growth outlook is good too, and we expect Ireland’s GDP to expand strongly, albeit at a more sustainable pace, by around 3% this year, and 2.5% next year. The economic successes of recent years owe much to the government’s efforts to address the legacy of the crisis. The fiscal deficit declined from 11.5% of GDP in 2009 to only 1% five years later. On a more subjective level, reported life satisfaction in Ireland is well above the OECD average.
Well done! But you are not done yet.
Data from the Central Statistics Office on poverty and social exclusion show the percentage of individuals at risk of poverty rising from 14.1% in 2009 to 16.5% in 2016. CSO figures also show that the gap in disposable income per head between the Border, Midlands and Western region and the rest of the State has not been reduced since the early 2000s, and is still around 10%.
That said, regional disparities are smaller in Ireland than in other OECD countries, thanks in part to the government’s social policies. And although public finances have improved over the past few years, gross public debt remains high. It was around 75% of GDP in 2016, and in per capita terms is one of the highest across OECD countries.
The government’s aim of reducing gross public debt to 45% in the long run is prudent, given Ireland’s high exposure to external shocks. Likewise the creation of a “rainy day fund” is, as Minister Donohue says, an important step in “strengthening the national finances in a changing and risky world”.
The banking reforms and strengthened macroprudential measures are bearing fruit, but financial sector vulnerabilities still need to be addressed. Following the threat to the banking system when the housing bubble burst, Irish taxpayers were landed with debt obligations of 64 billion euros, nearly 40% of GDP at the time, making it the biggest state rescue of banks in the Eurozone.
While non-performing loans on bank balance sheets have declined by around 60% from their peak, the stock remains high. Measures that address judicial inefficiencies relating to the repossession of collateral and further encourage write-offs will promote the efficient allocation of capital as well as the resilience of the economy overall.
Many of the interventions you will hear today will focus on the big P – productivity. We see productivity and inclusiveness as forming a nexus – they can rise and fall together. In this survey, we identify reviving productivity in Ireland’s business sector as the key for future output and labour earnings.
That might sound surprising when you see that the world’s most innovative and productive firms are attracted to Ireland. But work carried out by the OECD and the Irish authorities shows that most local businesses have actually experienced a decline in productivity over the past decade. Productivity spillovers to local firms are limited.
The resilience of the economy hinges on unblocking the productivity potential of local businesses. The OECD survey identifies several key challenges that should be tackled to enable Irish businesses to succeed.
In essence, give entrepreneurs what they need to grow their businesses and get rid of what is stunting that growth. In Ireland that means tackling high regulatory barriers to entrepreneurship. In particular, the costly regulations relating to commercial property and legal services. In some cases, access to finance is holding individuals back from taking the step into entrepreneurialism. Efforts to improve the working of the banking sector are critical to correcting this.
But money isn’t the only kind of capital. Companies need talent, human capital, too. Given the large gap in productivity between foreign owned firms and local businesses, we need to think about how to raise the capacity of local businesses to absorb and implement new ideas and technologies. At present, managerial skills in many local firms are too weak to allow these businesses to identify and exploit the opportunities offered by the global leaders on their doorsteps.
This partly reflects the low proportion of workers participating in lifelong learning activities. With the level of skills needed to compete in the modern economy growing constantly, even workers in a job need to retrain, and the share of training funding going to those in employment needs to increase.
But Irish firms shouldn’t hope to succeed by simply relying on knowledge and technology transfers from foreign firms. They need to invest more in their own research and development activities. The government can help here by reorienting innovation policy to better promote the research intensity of local firms. In particular, public grants for business research and development could target local entrepreneurs that may be in the early loss-making stage of business creation, and so have little chance of benefiting from tax exemptions on research funding.
The OECD Economic Survey of Ireland also touches upon other significant challenges for wellbeing and inclusiveness in the areas of housing, health and getting people into work. To address these challenges, stringent housing regulations that are constraining dwelling supply should be rationalised, universal healthcare coverage provided, and some social benefits withdrawn more gradually as labour earnings rise.
Ladies and gentleman, in the years ahead, the challenge is to fully shake off the last legacies of the crisis years and fine tune the policy framework for sustainable prosperity. For its part, the OECD stands ready to work with Ireland every step of the way.