Professor John McHale's Fianna Fáil parliamentary party think-in presentation. John is the Chair of the Irish Fiscal Advisory Council.

1. Economic Outlook:
Growth, Risks, and Sustainability
John McHale
Whitaker Institute, NUI Galway
Irish Fiscal Advisory Council
September 14, 2015
Presentation to the Fianna Fáil Parliamentary Party, Marine
Hotel, Sutton

2. Overview
• Recent macroeconomic performance and outlook
• Risks to the outlook
– Internal
– External
• Sustaining growth
– Value of the new fiscal framework

3. Strong recent growth performance
7.3
6.8
-10
-5
0
5
10
15
2007 2008 2009 2010 2011 2012 2013 2014 2015
%ChangeY-Y
Real GDP and GNP Growth (% Year-on-Year)
GDP GNP
Source: CSO.

4. Near return to pre-crisis peak
67
73
80
83
86
88
91
94
98
100
95
89 89
91 91
92
96
99
102
60
65
70
75
80
85
90
95
100
105
110
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Index:2007=100
REAL GDP PER CAPITA
Source: CSO; internal calculations.

5. Sharper downturn + recovery than trading partners
60
65
70
75
80
85
90
95
100
105
110
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Index:2007=100
REAL GDP PER CAPITA
IE UK
US EA
Sources: CSO; IMF and internal calculations.

6. Central scenario is for solid growth to continue
0
50
100
150
200
250
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
€billions
Real GDP
Real GNP
Sources: Department of Finance; CSO.

7. Increasing contribution of domestic demand to recovery
Source: CSO.
9.4
8.8
18.2
-10
-5
0
5
10
15
20
2010 2011 2012 2013 2014 2015
%GrowthSinceTroughinQ22009
CUMULATIVE CONTRIBUTION TO REAL GDP GROWTH SINCE TROUGH
Residual Domestic Demand
Net Exports Real GDP

8. Evidence of rebalancing
0%
5%
10%
15%
20%
25%
30%
35%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% OF NOMINAL GDP
Investment
Net Exports
Source: CSO.

9. Challenges with interpreting the National Accounts
• Patent cliff
• Contract manufacturing
• Re-domiciled PLCs
• Treatment of profits in IT sector
• Aircraft leasing

10. But high-frequency data confirm strong growth
• Employment
• Unemployment
• Industrial production
• Retail sales / consumer confidence
• Exchequer returns

11. Encouraging employment growth
-8.56
3.0
-10
-8
-6
-4
-2
0
2
4
6
8
Q11999
Q31999
Q12000
Q32000
Q12001
Q32001
Q12002
Q32002
Q12003
Q32003
Q12004
Q32004
Q12005
Q32005
Q12006
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Q12014
Q32014
Q12015
%GrowthY-Y
Source: CSO.

12. Unemployment rate falling, but well above pre-crisis lows
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
%TotalLabourForce
UNEMPLOYMENT RATE (% TOTAL LABOUR FORCE)
Sources: CSO

13. Industrial production volumes strong, including traditional sector
-20
-10
0
10
20
30
40
50
60
Jan2007
May2007
Sep2007
Jan2008
May2008
Sep2008
Jan2009
May2009
Sep2009
Jan2010
May2010
Sep2010
Jan2011
May2011
Sep2011
Jan2012
May2012
Sep2012
Jan2013
May2013
Sep2013
Jan2014
May2014
Sep2014
Jan2015
May2015
%changey/y(3monthmovingaverage)
Manufacturing
Modern
Traditional
Source: CSO.
Notes: Traditional sector excludes all modern sectors (i.e. Chemicals and pharmaceuticals; Computer, electronic, optical and electrical equipment; Reproduction
of recorded media; and Medical and dental instruments and supplies) but may still include activities with a high concentration of MNCs.

14. Good growth in retail sales augers well for consumption
Source: CSO.
Note: Core retail sales excludes motor trades.
6.0
7.6
-25
-20
-15
-10
-5
0
5
10
15
Jan2009
Apr2009
Jul2009
Oct2009
Jan2010
Apr2010
Jul2010
Oct2010
Jan2011
Apr2011
Jul2011
Oct2011
Jan2012
Apr2012
Jul2012
Oct2012
Jan2013
Apr2013
Jul2013
Oct2013
Jan2014
Apr2014
Jul2014
Oct2014
Jan2015
Apr2015
Jul2015
%ChangeY-Y,3MMovingAverage
Core Retail sales
Total Retail Sales

15. Consumer sentiment now above long-run average
Source: KBC/ESRI
Note:Long-run average of consumer sentiment index = 85.5.
100.3
0
20
40
60
80
100
120
Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015
3monthmovingaverage

16. Strong year-on-year growth in exchequer revenues
11.7
-30
-25
-20
-15
-10
-5
0
5
10
15
20
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
%ChangeY-Y
Source: Department of Finance.
Note: Based on in-year cumulative figures to end of quarter specified (e.g., Q2 2015 shows y/y % change for first six months of 2015 compared to same period in
2014.

17. Revenues above Budget-day expectations
912
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
€million
FIGURE 3: TAXES AND PRSI RELATIVE TO CUMULATIVE PROFILE
Income Taxes VAT Excise Duties Corporation Tax
Capital Taxes Stamp Duties "Other" PRSI
Source: Department of Finance.

18. But significant risks
• Encouraging central growth scenario
• But significant risks surround that scenario
• Internal risks
– Domestic imbalances
• Requires ongoing monitoring
• External risks
– Volatile external environment

19. Large margins of error surround growth forecasts
-2.6
-5.0
0.4
2.6
0.2
1.4
5.2
4.0
3.8
-8
-6
-4
-2
0
2
4
6
8
2008 2009 2010 2011 2012 2013 2014 2015 2016
%ChangeY-Y
REAL GDP FAN CHART BASED ON SPU 2015 PROJECTIONS (TO 2016)
80% likelihood range
60% likelihood range
40% likelihood range
20% likelihood range
Official Outturns / Point Forecasts
Sources: CSO; Department of Finance; internal IFAC calculations.
Note: Distributions or 'fans' around historical growth estimates are based on previous revisions to real GDP data. Both forecast errors and revisions are based on
1999-05 sample.

20. Monitoring internal imbalances
• Credit growth
• Property prices / construction
• Competitiveness
• Current account balance

21. New mortgage lending rising from low base
87.7
22.2
19.2
4.1
0
5
10
15
20
25
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Number of loans, '000s
Value of loans, €bn (RHS)
Source: IBF/PwC Mortgage Market Profile.
Notes: Both series cover first-time buyer and mover purchaser loans (moving 4-quarter sum).

22. 0
5
10
15
20
25
30
35
0
1
2
3
4
5
6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Price: Disposable Income per household *
Price: Annual Avg. Rent (RHS)
Monitoring for signs of overvaluation
Sources: ESRI/PTSB; CSO.
*Average house prices divided by moving 4-quarter sum of adjusted personal disposable income per household.

23. House completions low but increasing
93,419
11,016
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Total Housing Completions
Source: DOECLG

24. Construction shares of GNP below long-run averages
14.1
2.3
0
2
4
6
8
10
12
14
16
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
%GNP
Dwellings
Roads
Other B&C
Source: CSO
Note: Respective long-run median (in same colours) of each series shown in horizontal lines.

25. Significant supply shortfall in Dublin
3.3
1.2
0.6
0.3 0.2 0.2
1.4
1.0
0.3 0.2 0.2 0.1
7.5
0.9
0.5 0.5
0.1 0.2
0
1
2
3
4
5
6
7
8
Dublin City &
Suburbs
Cork City & Suburbs Galway City &
Suburbs
Limerick City &
Suburbs
Waterford City &
Suburbs
Kilkenny City
Housing Completions and Requirements ('000s)
House Completions in 2014
House Completions in H1 2015
Estimated Housing Requirement p.a. (2014-2018)
Source: Housing Agency; DoECLG.
Note: Completions cover rural + urban settlements (private and social); requirements only cover urban settlements of 1,000+ persons.

26. Improvement in competiveness
106 106 107
104
101
96
100
102
113
119
123
126
133
145
137
123
119
113
120 119
111
70
80
90
100
110
120
130
140
150
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
RELATIVE REAL EFFECTIVE EXCHANGE RATE (BASE: 2001 = 100)
Sources: AMECO; Central Bank of Ireland.
Note: Relative Real Effective Exchange Rates (REER) are based on unit labour costs and are benchmarked against the performance of 24 industrialised economies.

27. Current account near balance excluding re-domiciled PLCs
-0.4
-0.6
-1.0
0.5
-0.1
-3.3
-4.9
-6.1
-5.8
-4.1
-0.8
-1.2
-1.5
3.1
3.6
-5.1
-3.9
-4.5
-5.7
-0.2
-8
-6
-4
-2
0
2
4
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%GDP
Current Account Balance
Adjusted for Re-domiciled PLCs

28. Openness makes the economy vulnerable to external shocks
 China / Emerging Markets
 US monetary policy normalization
 Euro Area stagnation
 Brexit
 Long term growth slowdown / secular stagnation
 Geopolitical Risks
 “Unknown unknowns”
112
0
50
100
150
200
250
US
Japan
Australia
Turkey
UK
France
Italy
Spain
Canada
Greece
Mexico
Albania
Finland
Norway
Portugal
Montenegro
Romania
EU-15
EU
Serbia
Euroarea
Sweden
Germany
Croatia
Poland
Macedonia…
Korea
Austria
Iceland
Denmark
Cyprus
Latvia
Bulgaria
Switzerland
Slovenia
Lithuania
Netherlands
Belgium
CzechRep.
Estonia
Hungary
Slovakia
Ireland
Malta
Luxembourg
Exportsas%ofGDP
Source: AMECO.

29. Growing dependence on certain sectors
0
10
20
30
40
50
60
70
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
%
CHEMICAL AND RELATED PRODUCTS AS
% TOTAL GOODS EXPORTS
Sources: CSO.
0
5
10
15
20
25
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
%
COMPUTER & FINANCIAL SERVICES AS
% TOTAL SERVICES EXPORTS

30. Corporation Tax: Top 10, 20 & 50 Companies
Source: Pigott and Walsh (2014); authors’ analysis of Revenue data.
Top 10, 20 and 50 Companies
€bn unless
stated % of Total
Total Corporation Tax 4.1
Top 10 Companies CT Paid 1.0 24%
Top 20 Companies CT Paid 1.3 32%
Top 50 Companies CT Paid 1.9 46%
CORPORATION TAX PAYMENTS (ANNUAL AVG. 2008-2012)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012
CORPORATION TAX PAYMENTS
(% OF TOTAL)
All other companies CT Paid Companies 21 - 50 CT Paid
Companies 11 - 20 CT Paid Top 10 Companies CT Paid

31. Euro Area challenges
2.2
2.4
2.3
2.1 2.2 2.2 2.2 2.2
3.3
0.3
1.6
2.7
2.5
1.3
0.4
0.1
1.0
1.2
1.4
1.5
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
%ChangeY-Y
Euro Area: CPI Inflation
3.8
2.1
0.9
0.7
2.2
1.7
3.2 3.0
0.5
-4.5
2.0
1.6
-0.8
-0.4
0.8
1.5 1.7 1.6 1.6 1.6 1.5
-5
-4
-3
-2
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
%ChangeY-Y
Euro Area: Real GDP Growth (% Y-Y)
Source: IMF (Latest World Economic Outlook).

32. Pattern of Euro Area growth downgrades
97
98
99
100
101
102
103
104
105
106
2010 2011 2012 2013 2014 2015 2016
Index(Base:2010=100)
Euro Area: Real GDP (European Commission Forecast Vintages)
Spring 2015
Winter 2015
Autumn 2014
Spring 2014
Winter 2014
Autumn 2013
Spring 2013
Winter 2013
Autumn 2012
Spring 2012
Sources: European Commission Forecasts, Different Vintages.

33. Sustaining growth
--Avoiding pro-cyclicality
--Preventing crises

34. Some emerging lessons from the banking inquiry
• Difficulty of avoiding pro-cyclical policies in times of
strong economic growth
• Importance of risk management
– Looking beyond central scenarios
• Significant crisis-induced institutional reforms
– Banking
– Fiscal

35. Value of a strong budgetary framework
• European rationale
– Spillovers across countries
• Domestic rationale
– Avoid pro-cyclicality in good times
– Avoid large forced adjustments in bad times

36. Risk: Net debt ratio among highest in the world
9 11 12 15 15 20
29 29 29 32
38
44 46
54 55 55 59 60
69 71 72 72 73 77 80 83 86 87 89
94 97 100
111
120
130
161
0
20
40
60
80
100
120
140
160
180
Sweden
EM&MIAvg.*
Bulgaria
Finland
Denmark
Australia*
CzechRep.
Latvia
Romania
Lithuania
Canada*
Poland
Slovakia
Netherlands
Germany
Slovenia
Austria
Malta
Hungary
EU
Adv.Economies*
UK
Croatia
EuroArea
US*
Spain
Ireland(GDP)
France
Cyprus
Ireland(Hybrid)
Belgium
Ireland(GNP)
Portugal
Italy
Japan*
Greece
%GDP
NET DEBT RATIOS (% GDP, Q1 2015 UNLESS STATED)
Sources: Eurostat; IMF Fiscal Monitor (April 2015); CSO and internal IFAC calculations.
Notes: Other than those countries marked by an asterisk, all net debt ratios are based on Q1 2015 Government Finance Statistics from Eurostat or the CSO (for Ireland). Net debt is
calculated as Gross Consolidated Debt less EDP debt instrument assets (F2: Currency and Deposits; F3: Debt securities; and F4: Loan assets).
* IMF 2015 estimates are reported for those countries not covered by Eurostat Q1 Government Finance Statistics. For cross-country comparability, net debt levels reported are
those of national statistical agencies for countries that have adopted the 2008 System of National Accounts (Australia, Canada, United States) excluding unfunded pension
liabilities of government employees’ defined-benefit pension plans.

37. Fiscal rules should bring debt to safer levels
24.0
123.2
105.0
48.6
0
20
40
60
80
100
120
140
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
%GDP
General Government Gross Debt Scenario
Outturns
Scenario
Source: Department of Finance; internal IFAC calculations.
Notes: Illustrative scenario assumes Department of Finance projections for 2016-2020 adjusted for minimum
compliance with the Budgetary Rule; real GDP growth of 3% beyond 2020, with GDP deflator growth of 2%
and marginal borrowing costs of 3.5%.

38. Debt path highly sensitive to growth shocks
101.9
95.9
90.2
105.0
84.7
79.3
74.1
69.0
60
70
80
90
100
110
120
130
2012 2013 2014 2015 2016 2017 2018 2019 2020
GeneralGovernmentDebt,%ofGDP
GENERAL GOVERNMENT DEBT PATHS:
SCENARIOS AROUND SPU 2015 DEBT TO GDP PROJECTION
-1.5
-1
-0.5
Base
+0.5
+1
+1.5
Source: Department of Finance, internal IFAC calculations based on the Council's Fiscal Feedbacks Model.
Note: The figure shows alternative projections of the balance ratio based on GDP growth forecasts that deviate from
SPU projections by 0.5, 1.0 and 1.5 percentage points in either direction. The "Base" scenario corresponds to the
central projection for the debt GDP ratio as published in SPU 2015.

39. Complementary domestic and European elements
Effectiveness
of Domestic
Framework
Effectiveness
of European
Framework
Monitoring, peer pressure and possible sanctions of the European
framework enhances the effectiveness of the domestic framework
Domestic ownership adds legitimacy to the European rules

40. Synergies between rules, institutions and processes
Rules
Institutions Processes
Fiscal
Framework

41. European/Domestic fiscal rules
Domestic
European
Corrective Arm
of SGP
Preventive Arm
of SGP
3% Deficit
Rule
1/20th
Debt Rule
MTO /
Adjustment
path to MTO
Expenditure
benchmark
Domestic
Budgetary
Rule
Domestic
Expenditure
Ceilings
Domestic Budgetary Rule
Consistent with Preventive
Arm of SGP
Domestic Expenditure Ceilings Consistent
with Expenditure Benchmark

42. Summing up
• Strong recent economic performance
• Encouraging central scenario for projected growth
• But significant risks around that scenario
• Institutional reforms should help avoid repeat of past
mistakes
• But now need to respect the new frameworks