Returning to Economic Growth, May 2010
Post on 29-May-2015
278 Views
Preview:
DESCRIPTION
Transcript
Returning to Economic Growth
May 2010
2
Our plan for economic recovery is working
Restoring order to the public finances.
Repairing the banking system.
Regaining competitiveness to create new jobs.
3
Much has been achieved on the public finances
Fiscal correction of 5 per cent of GDP in 2009 and 2½ per cent of GDP in 2010.
Without these measures, budget deficit would have ballooned to 20 per cent of GDP.
4
We have stabilised the deficit with decisive actions. EU Commission have endorsed our plan to reduce the deficit to 3 per cent by 2014.
Budget balance (% of GDP)
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010f 2011f 2012f 2013f 2014f
% o
f G
DP
Stability and GrowthPact "threshold"
*Underlying 2009 General Government Deficit of 11.8% of GDP
5
We must retain our fiscal discipline and deliver €3 billion of adjustments in 2011
€1 billion adjustment in capital spending already provided for. Will still spend €5½ billion in 2011 to boost
productive capacity in crucial growth sectors.
Where will the other €2 billion adjustment be achieved? Reduce cost of public services and reform of
how we tax income.
6
We need to reduce spending further
Payroll costs must be contained.
Certain current expenditure programmes can be scaled back or eliminated.
7
Tax base needs to be broadened
Little or no scope for increases in marginal income tax rates. Nearly half of income earners will pay no
income tax this year. New universal social contribution to be
paid at a low rate on a wide base. Replace employee PRSI, the Health Levy
and the Income Levy. Water charges.
8
We have taken the necessary actions to solve the problems in the banking system
State guarantee to stabilise funding.
National Asset Management Agency to clean up banks’ balance sheets.
Recapitalisation of banks and restructuring of the banking system.
Reform of the regulatory system.
9
We are in the ultimate phase in the resolution of our financial crisis
NAMA has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis. 51% average discount – aggressive
valuations. NAMA has forced the banks to acknowledge
reality and recognise their losses.
Financial Regulator and Central Bank have set prudent capital requirements. 8% core tier 1 capital requirement, of which
7% must be equity.
10
Banks need additional equity capital to meet the new capital standards
Bank of Ireland: €2.7 billion. Private capital raising Significant return to the State from its involvement in
the capital raising – includes conversion of preference shares into ordinary equity.
Allied Irish Bank: €7.4 billion. Detailed capital plan submitted to Financial Regulator.
Can be fully met from the National Pension Reserve Fund.
NPRF will hold valuable shares.
11
Getting credit to viable businesses, particularly SMEs.
Specific lending targets on two main banks. €3bn each for new lending to SMEs in both
2010 and 2011. Must include funds for working capital. Must submit SME lending plans both by
geography and sector.
Credit Review process. SMEs, sole traders and farmers, who have had
credit refused or withdrawn, can apply for an independent review of the bank’s decision.
12
Why are we supporting Anglo Irish Bank?
Immediate wind-up would lead to: Fire-sale of assets resulting in a
permanent additional and unnecessary loss of more than €30 billion.
State would have to provide in the order of €70 billion of cash up-front to meet the deposits, bondholders and the liabilities due to the Eurosystem.
13
Stabilising the economy and setting the seeds for renewed growth and new jobs
Consensus forecast is for a return to positive growth in the second half of this year.
Growth projected to strengthen next year and beyond, led by exports.
Net job creation of 20,000 next year, and 45,000 each year thereafter.
14
Improving competitiveness will spur exports
-4
-2
0
2
4
6
8
10
eu
ro a
rea
ire
lan
d
be
lgiu
m
ge
rma
ny
gre
ece
sp
ain
fra
nce
ita
ly
cyp
rus
luxe
mb
ou
rg
ma
lta
ne
the
rla
nd
s
au
str
ia
po
rtu
ga
l
slo
ve
nia
slo
va
kia
fin
lan
d
pe
r ce
nt ch
an
ge
Ireland is the only country in the euro area in which unit labour costs are falling - last year there was a 5¼%
improvement in unit labour costs vis-à-vis the euro area
source: EU Commission Autumn 2009 forecasts
Unit labour costs (annual change in 2009, %)
15
Balance of payments is moving toward surplus
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f
pe
r ce
nt o
f GD
P
Chart shows: current account of balance of payments (inc D/Finance forecasts)
16
Consumer confidence and spending are improving
0
10
20
30
40
50
60
70
80
90
100
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
98
99
100
101
102
103
104
105
106
107
108
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Consumer spending*Consumer confidence
*Volume of core (excl cars) retail sales. 2005=100
17
Business confidence is improving
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
Ja
n-0
1
Ap
r-0
1
Ju
l-0
1
Oct-
01
Ja
n-0
2
Ap
r-0
2
Ju
l-0
2
Oct-
02
Ja
n-0
3
Ap
r-0
3
Ju
l-0
3
Oct-
03
Ja
n-0
4
Ap
r-0
4
Ju
l-0
4
Oct-
04
Ja
n-0
5
Ap
r-0
5
Ju
l-0
5
Oct-
05
Ja
n-0
6
Ap
r-0
6
Ju
l-0
6
Oct-
06
Ja
n-0
7
Ap
r-0
7
Ju
l-0
7
Oct-
07
Ja
n-0
8
Ap
r-0
8
Ju
l-0
8
Oct-
08
Ja
n-0
9
Ap
r-0
9
Ju
l-0
9
Oct-
09
Ja
n-1
0
Ap
r-1
0
manufacturing
services
construction
not expanding or contracting
Purchasing Managers’ Indexes
18
Our polices have boosted international confidence in our ability to recover
“In the case of Ireland very, very tough decisions have been taken by the government and rightly so.”
Jean Claude Trichet (ECB)
“Ireland has set the high standard the rest of us must follow.” French Finance Minister, Christine
Lagarde
“I think there is a deeply rooted trust and confidence in this country’s ability to sort out its problems. … There is a fundamental belief that the Irish are going to solve it.”
German Minister for European Affairs, Dr. Werner Hoyer
“Ireland’s bold and credible measures are paying off. I would agree with Brian Lenihan that the worst is over and the Irish economy is now recovering.”
European Commissioner for Economic and Monetary Affairs, Olli Rehn
19
Conclusions
Plan for economic recovery is working. Positive growth later this year, leading to
employment growth next year. Confidence is returning – externally and
domestically.
The full implementation of the plan will restore sustainable growth, create new jobs, and deliver economic prosperity.
top related