Economic surveys and country surveillance

Economic Survey of Ireland 2011

 

How to obtain this publication | Additional information 

  • Overview-Economic Survey of Ireland 2011     

The Irish economy was hit by a severe crisis in 2008, after over a decade of strong growth that propelled Ireland to the fourth highest level of GDP per capita in the OECD. Initially growth was well founded on solid productivity increases. However, during a period of low-cost funding on international markets and low risk aversion globally, the expansion became increasingly reliant on a speculative housing bubble financed by lax bank lending standards and excessive credit expansion that collapsed in 2008 in the midst of the global economic and financial crisis. During the latter part of the boom, the acceleration of wages eroded international cost-competitiveness and the banking system became over-extended and, once the bubble burst, would have been insolvent without state support. Capital injections to help resolve the crisis have resulted in a sharply higher public debt. In the aftermath, households have been hit by wage cuts, job losses, tax increases and falling house prices, though living standards and perceptions of well-being remain high by international standards.

Since 2008, the government has carried out a very sizeable fiscal consolidation. This effort is continuing. The three-year adjustment programme with financial support from the IMF and EU is on track and has started to tackle the roots of the imbalances. Following comprehensive stress tests, the banking system has been recapitalized, but the banks still require liquidity support from the Eurosystem. Good progress is being made to cut the fiscal deficit, but more needs to be done. Against a challenging international backdrop of contagion risk and uncertainty about the policy of euro area governments on sovereign debt, financial-market sentiment towards Ireland worsened considerably but did improve somewhat during the summer. The crisis caused a sharp rise in joblessness and large numbers of young less-educated males remain unemployed. The risk is that joblessness becomes persistent, which could undermine the social consensus that is underpinning the economic and fiscal adjustment. A modest recovery is underway, driven by gains in competitiveness and increases in exports, but it comes with significant downside risks associated with market fears regarding financial stability in the euro area.

While government gross debt as a share of GDP has reached one of the highest levels in the OECD area and official financial support remains indispensable in the near term, an orderly return towards a more balanced financial position is possible, provided that tight fiscal policies and wage restraint are in place sufficiently long. To increase the chances of success, the authorities need to continue vigorously implementing the measures required to complete the unwinding of imbalances, ensure that the burden is fairly shared and capitalize on the structural strengths of the Irish economy. These include its business friendly environment, its flexible labour markets and a skilled labour force.

This Survey argues that the authorities should:

 

Persevere on the path of fiscal consolidation:

  • Continue to fully comply with the conditions and targets of the EU-IMF programme;
  • Reduce the budget deficit to below 3% of GDP by 2015;
  • Reduce the budget deficit faster than required by the programme to help regain credibility in financial markets if economic growth allows;
  • Focus spending restraint on public-sector efficiency, welfare reform and scaling back infrastructure projects;
  • Broaden the tax base by reducing tax expenditures and proceeding with the planned property taxes;
  • Strengthen the fiscal framework by focusing on the debt-to-GDP target to be met by a specified date; legislating multi-year budget plans; and introducing a nominal expenditure ceiling.

Exit from the banking crisis and restore the banking system to health:

  • As financial market confidence returns, restrict the bank eligible liability guarantee scheme to a narrower range of liabilities, with fees that are commensurate to risk;
  • To help prevent future crises, focus supervision on a set of indicators including: a simple leverage ratio; loan-to-value ratio; loans-to-income ratio; and capital requirements linked to bank size. Also establish a credit register to prevent excessive exposures;
  • To prevent the recurrence of problems with regulatory forbearance, adopt a process where the breach of identified thresholds, such as excessive growth in overall lending, would accelerate a formal assessment of what, if any, corrective action may be required.

Prevent high unemployment from becoming structural:

  • Engage the employment services more actively with job seekers, and require participation in relevant training and job search in return;
  • To promote return to work, relate unemployment benefits to unemployment duration;
  • Review the work incentive effects of other welfare benefits, especially housing allowances;
  • Better attune training programmes to labour market needs; in particular enlarge the set of trades covered by apprenticeships and temporarily close apprentice admission in construction trades;
  • Extend the duration of the current cut in employers’ social security contributions.

Further improve competitiveness in order to support export-led growth:

  • A further decline in unit labour cost is essential to support exports ;
  • Enhance competition in the electricity sector by clearly separating generation, transmission, distribution and supply;
  • Focus feed-in electricity tariff support on the most cost-efficient renewable sources;
  • Introduce civil fines in competition law, so as to reduce incentives for anti-competitive behaviour;
  • To enhance the quality of education, systematically evaluate teachers’ and schools’ performance.

Download underlying data from graph

How to obtain this publication

 

The complete edition of the Economic Survey of Ireland is available from:

 

Additional information

For further information please contact the Ireland Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by David Haugh and Alvaro Pina under the supervision of Patrick Lenain. Research assistance was provided by Josette Rabesona.

www.oecd.org/eco/surveys/ireland

 

 

 

Countries list

  • Afghanistan
  • Albania
  • Algeria
  • Andorra
  • Angola
  • Anguilla
  • Antigua and Barbuda
  • Argentina
  • Armenia
  • Aruba
  • Australia
  • Austria
  • Azerbaijan
  • Bahamas
  • Bahrain
  • Bangladesh
  • Barbados
  • Belarus
  • Belgium
  • Belize
  • Benin
  • Bermuda
  • Bhutan
  • Bolivia
  • Bosnia and Herzegovina
  • Botswana
  • Brazil
  • Brunei Darussalam
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Cape Verde
  • Cayman Islands
  • Central African Republic
  • Chad
  • Chile
  • China (People’s Republic of)
  • Chinese Taipei
  • Colombia
  • Comoros
  • Congo
  • Cook Islands
  • Costa Rica
  • Croatia
  • Cuba
  • Cyprus
  • Czech Republic
  • Côte d'Ivoire
  • Democratic People's Republic of Korea
  • Democratic Republic of the Congo
  • Denmark
  • Djibouti
  • Dominica
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Equatorial Guinea
  • Eritrea
  • Estonia
  • Ethiopia
  • European Union
  • Faeroe Islands
  • Fiji
  • Finland
  • Former Yugoslav Republic of Macedonia (FYROM)
  • France
  • French Guiana
  • Gabon
  • Gambia
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Greenland
  • Grenada
  • Guatemala
  • Guernsey
  • Guinea
  • Guinea-Bissau
  • Guyana
  • Haiti
  • Honduras
  • Hong Kong, China
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iraq
  • Ireland
  • Islamic Republic of Iran
  • Isle of Man
  • Israel
  • Italy
  • Jamaica
  • Japan
  • Jersey
  • Jordan
  • Kazakhstan
  • Kenya
  • Kiribati
  • Korea
  • Kuwait
  • Kyrgyzstan
  • Lao People's Democratic Republic
  • Latvia
  • Lebanon
  • Lesotho
  • Liberia
  • Libya
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Macao (China)
  • Madagascar
  • Malawi
  • Malaysia
  • Maldives
  • Mali
  • Malta
  • Marshall Islands
  • Mauritania
  • Mauritius
  • Mayotte
  • Mexico
  • Micronesia (Federated States of)
  • Moldova
  • Monaco
  • Mongolia
  • Montenegro
  • Montserrat
  • Morocco
  • Mozambique
  • Myanmar
  • Namibia
  • Nauru
  • Nepal
  • Netherlands
  • Netherlands Antilles
  • New Zealand
  • Nicaragua
  • Niger
  • Nigeria
  • Niue
  • Norway
  • Oman
  • Pakistan
  • Palau
  • Palestinian Administered Areas
  • Panama
  • Papua New Guinea
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Qatar
  • Romania
  • Russian Federation
  • Rwanda
  • Saint Helena
  • Saint Kitts and Nevis
  • Saint Lucia
  • Saint Vincent and the Grenadines
  • Samoa
  • San Marino
  • Sao Tome and Principe
  • Saudi Arabia
  • Senegal
  • Serbia
  • Serbia and Montenegro (pre-June 2006)
  • Seychelles
  • Sierra Leone
  • Singapore
  • Slovak Republic
  • Slovenia
  • Solomon Islands
  • Somalia
  • South Africa
  • South Sudan
  • Spain
  • Sri Lanka
  • Sudan
  • Suriname
  • Swaziland
  • Sweden
  • Switzerland
  • Syrian Arab Republic
  • Tajikistan
  • Tanzania
  • Thailand
  • Timor-Leste
  • Togo
  • Tokelau
  • Tonga
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Turks and Caicos Islands
  • Tuvalu
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • United States
  • United States Virgin Islands
  • Uruguay
  • Uzbekistan
  • Vanuatu
  • Venezuela
  • Vietnam
  • Virgin Islands (UK)
  • Wallis and Futuna Islands
  • Western Sahara
  • Yemen
  • Zambia
  • Zimbabwe