Economic Survey of Ireland 2009

 

Contents | Executive summary | How to obtain this publication | Additional information 

   

 

The next Economic Survey of Ireland will be prepared for 2011.

 

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared.

The OECD assessment and recommendations on the main economic challenges faced by Ireland are available by clicking on each chapter heading below.

 

Bookmark this page : www.oecd.org/eco/surveys/ireland

Remarks by Angel Gurría, OECD Secretary-General at the Dublin launch on 4 November 2009

See related OECD Observer article

Contents

 

Chapter 1: Restoring macroeconomic and financial stability

Ireland is in severe recession, following several years of high but ultimately unsustainable growth and rising imbalances. A fast expansion of bank credit encouraged a boom in construction activity and property prices, which fuelled domestic spending more widely. This cycle has now reversed dramatically. Output is expected to contract sharply and unemployment is likely to reach 14%. The banking sector, which was at the heart of the credit expansion, has been severely hit by the crisis in international financial markets and faces large losses on heavy property related lending. Credit conditions have tightened. A return to normal functioning of the financial system is needed and a range of policies is in place to restore the banking system to good health. An economic recovery is likely to begin next year but a protracted period of adjustment will be needed to resolve economic imbalances built up during the expansion. Competitiveness deteriorated during the upswing and the strong real exchange rate is hindering the return to growth. Restoring competitiveness inside monetary union will occur through downward adjustment in wages and prices, which appears to be already underway. With fast rising public debt, fiscal consolidation, which has begun, will be needed over an extended period. For the longer term, lessons should be learnt to avoid macroeconomic imbalances arising on this scale again.

 

Chapter 2: Rebuilding the public finances

The fiscal consolidation challenge for Ireland is severe, the underlying budget balance having moved abruptly from surplus to a large deficit. Consolidation has already begun to repair the deterioration in the public finances via a series of emergency budget interventions amounting to close to 5% of GDP in 2009, but the adjustment process will last several years. Debt levels have risen very substantially from initially low levels. Restoring the budget to a sustainable path will require both increases in revenues and cuts in public expenditure. On the tax side, this involves correcting structural deficiencies that built up as revenues became over dependent on buoyant house prices and construction, which have collapsed, while the revenue-raising capacity of the income tax base became severely impaired. The Commission on Taxation has recently reported on proposals for tax reform. On the expenditure side, many public programmes over expanded in the boom and have to be brought into balance with reduced resources. An independent report commissioned by the government has identified a wide range of cuts in expenditure and staffing. Cushioning the effect of public spending cuts on service provision will require greatly enhanced efficiency. Since weaknesses in the budget process have been partly to blame for the current crisis, the consolidation process will also require the establishment of stronger budgetary planning and control mechanisms, which identify and pursue long run fiscal objectives in a consistent and sustainable way.

 

Chapter 3: The labour market: getting people into work

The Irish labour market is undergoing a severe adjustment following the sharp fall in output, which has been concentrated on labour intensive sectors. This has led to a large reduction in employment and high levels of unemployment, despite some outward migration. The labour market in Ireland is flexible in terms of regulation and widespread evidence suggests some reduction in nominal wages is already taking place. But, there is a serious risk that joblessness in the short run will translate into a permanently higher level of unemployment due to the combination of relatively high unemployment benefits for low-skilled workers and, more importantly, weak activation measures. Although some measures have been taken in response to the rise in unemployment, greater encouragement and support should be provided to help the unemployed get back into work and conditionality should be stricter. For the longer run, female participation would be facilitated by removing obstacles in the tax-benefit system; lone parents would be helped by greater support and a stronger requirement to work; and more systematic efforts are required to ensure that disability is not a pathway to inactivity.

 

Chapter 4: Boosting competitiveness and raising living standards

Living standards in Ireland will remain high, despite the severe contraction, but stronger structural policies would encourage sustainable long run growth. Hard times can be a good time to make overdue reforms and these would also help improve competitiveness. Policies are already favourable to competition in many respects, but market forces are weak in the network industries and parts of the services sector. Prices could be lowered by measures to increase competition. The infrastructure has been upgraded but more investment is needed, although plans in the short term need to adjust in light of budgetary constraints, and the efficiency of infrastructure use could be improved. Ireland has benefitted from past improvements in education. While performance is good, there is scope to improve educational outcomes. Pre primary education and in work training should ultimately be increased. Innovation spending has increased rapidly but from a low base. Achieving environmentally sustainable growth is a major challenge and it will be difficult for Ireland to meet its commitments to reducing carbon emissions. While environmental policy has improved, there are significant weaknesses in management of waste. 

 

How to obtain this publication

 

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

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. 

 

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 Sebastian Barnes under the supervision of  Patrick Lenain. Research assistance was provided by Annette Panzera and Joseph Chien.

 

 

 

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