European Commission Forecast: Not so good for Ireland

The EC is out today with their autumn forecast, (here’s Ireland specifically (.pdf)) and the numbers don’t look great for Ireland in the short term.


Domestic demand to remain, ahem, subdued, until 2014;

Labour markets weak, especially construction.

Fiscal pressures to continue.

They’ve revised downward their forecast for growth from 1.9% to 1.1% for next year.


By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

48 replies on “European Commission Forecast: Not so good for Ireland”

Growth, my hat.

What is the growth forecast as a percentage of GNP? The real economy is in a long and deep recession.

I was ridiculed on this site by Seamus Coffey last April/May for rubbishing the IMF’s official growth forecast of nominal growth of 4.5% in 2015. That forecast and Seamus’s defence of it (by assuming average growth rates from the 70s to the 00’s) were and are pie in the sky.

The sad thing about all of this is that it is entirely predictable in a financial and debt crisis made worse by a lack of monetary stimulus coupled with fiscal austerity. It is terrible indictment of economists both in academia and government/EU/IMF that they can forget what is in their textbooks and make delusion claims of a strong recovery just around the corner.

The worst of it is that such charlatanism is used as cover for cynical political posturing and policy making in Berlin and Brussels.


“The worst of it is that such charlatanism is used as cover for cynical political posturing and policy making in Berlin and Brussels.”

And Dublin. In spades.

The general government deficit is expected to be 7.5% of GDP in 2013, more or less where it was in 2008 when ‘austerity’ began. The Irish government defcit forecast will be higher than Greece in 2014 at 5% of GDP, and the structural deficit unsupassed anywhere in EU at 5.3%.

This time last year the Commission was forecasting that domestic demand would subtract 0.7% from GDP in 2012 before adding 0.3% 2013. It is now forecasting -2.2% and -0.7% for those same years.

Whatever multiplier is being used to assess the impact of fiscal tightening on the domestic economy would seem to require significant upward adjustment.


Rude good health? Why then have all forecasts for 2012 been downgraded throughout the year. QoQ GNP growth of over 4% is not going to translate into strong annual GNP growth. Let’s wait for the final annual figures before declaring “Mission Accomplised”.

@Michael Burke
good post.

2.4% growth in real GDP in Iceland next year, they have a government not a bunch of self-serving poodles. Next time I hear a government minister or an RTE lifer rabitting on about how good the trokia think we are doing I am going to get sick. Their sole interest is the size of their pension pots as their fingers fumble in the greasy till.

What is the difference between Ireland and Iceland, one letter they kept their fish and the deeds of the country. The Irish political class gave away the deeds and the fish and got what in return – The vague promise that the EU may look at the promissory notes sometime – That has to go down with the sale of Alaska by Russia to America for 1 million dollars as the worst deal in history. At least the russians got 1 million..

That’s YoY, not QoQ…

Those would be GDP forecasts. The ones you were complaining about… 😕

If you want to wait for the final figures, then you should stop posting your opinions as numbers. You said that GNP showed the country still in recession. It doesn’t. Whether it will show a double-dip (I think it will) is a different question, but if you want to use the stupidity that is GDP/GNP numbers, then at least get them right and acknowledge what numbers have already been published.

The differences are:
1. 50% devaluation.
2. Closed economy.
3. State-sponsored property bubble to bail out the domestic banks.

There isn’t 3 in Ireland as the government have failed on that front for which we can all be thankful.


It is terrible indictment of economists both in academia and government/EU/IMF that they can forget what is in their textbooks and make delusion claims of a strong recovery just around the corner.

The Irish Economy has certainly been an eye opener for me. I had no idea how reactionary “respectable” Irish economists are in general and that the mass of German economic thinking is stuck sometime around the first world war.

Looking back over the last two decades in the EU there has been an unfortunate feedback loop between increasingly neoliberal politics in Germany, an embedding of a simplistic neoclassical economic analysis in European institutions (especially the Bundesbank-alike ECB) and which European economists were considered “serious”. The political and technocratic right found economic voices who supported their policies and promoted them, and as the general tenor of economic discussion in Europe became more “market fundamentalist” it allowed the political right in other countries to claim that their thinking was increasingly the mainstream.

Aidan Regan has an excellent post here about the political and democratic implications of the current EU which touches on this.

As for Ireland in particular I think Colm McCarthy is a solidly right wing economist and yet he seems less doctrinaire and more evidence led than the plurality and perhaps the majority of the Irish economic community.

Someone already mentioned this here but I am with Krugman on this. Too much genteel discussion, not enough “Why are these delusional political fanatics tolerated?”

… although the big question there is whether you’re trying to change the minds of the policy makers themselves, or the minds of other people, so we can get a new and better set of policy makers.

The country is an economic zombie , as are the banks. Limbo land.
The EZ has bought time with low interest rates and the various market soothers but nothing is happening otherwise.

Those are QoQ figures. The clue is in the title of the graph
“SeasonallyAdjusted growth rates
(%change on previous quarter)”

and in the description
“Preliminary estimates for the second quarter of 2012 show no change in volume in GDP compared with the first quarter of the year while GNP registered a 4.3 per cent increase.”

Note the “preliminary estimates” piece. The figure of 4.3% is meaningless and there isn’t a snowballs chance in hell that it will feed through to any meaningful GNP growth for the year.

My point about GNP is illustrated in the 3rd graph on this page.
We were already in a “double dip” in 2011 with respect to GNP and that is likely to continue this year. The GDP “growth” last year was meaningless in the context of the real economy.

Jeez, those are ‘real’ figures you are pointing to. Which do you want to talk? Nominal or real? Make your mind up and stop cross-mixing the two as it suits your argument.

“Those are QoQ figures. The clue is in the title of the graph”
Table 2 Expenditure on Gross National Product at Current Market Prices
Percentage change on corresponding period of previous year…

Not so good for Ireland….. and this is a highly pessimistic article in the Greek press today:

1.1% growth for Ireland next year? Sounds optimistic too.

It’s only low interest rates that is stopping this country (and others) from imploding. Imagine what the mortgage arrears in Ireland or Spain would be if interest rates were in the more normal range. How much longer can we rely on interest rates being kept low? Not that Irish banks aren’t already doing a good job of starting to hike up variable mortgage rates anyway. Where else are they going to make some money?

@ PR Guy

Interest rates could stay low for a very long time. The new normal is not normal at all. It’s a crisis without any sign of an end.

@ Seamus Coffey

“What are the projections for nominal GDP growth to 2014 in the forecast released today? It is these that matters for debt contracts.”

Natty graphic here:


Real GDP 2011: 1.4%
Real GDP 2012f: 0.4%
Real GDP 2013f: 1.1%
Real GDP 2014f: 2.2%

Inflation 2011: 1.2%
Inflation 2012f: 2%
Inflation 2013f: 1.3%
Inflation 2014f: 1.4%

Unemployment 2011: 14.4%
Unemployment 2011: 14.8%
Unemployment 2011: 14.7%
Unemployment 2011: 14.2%

Already discussion of budget being ‘tougher’ than thought. The continued projection of jam the-day-after-tomorrow goes on.

@ Gavin,

Thanks. Though it was a case of knowing where the answer were but wanting to see them put up. As you show, the forecasts for NGDP growth roughly are:

2012: 2.5%
2013: 2.5%
2014: 3.5%

With nominal GDP in 2011 currently put at €159 billion this means the EC forecasts for for nominal GDP are roughly

2012: €163 billion
2013: €167 billion
2014: €173 billion

The deficit targets for the upcoming budget will, on current EC projections, be based on a 2013 nominal GDP of around €167 billion. Last April’s Stability Programme Update had a 2013 nominal GDP figure of €164 billion.

7.5% of €164 billion is €12.3 billion
7.5% of €167 billion is €12.5 billion

There have been downward revisions to growth forecasts but these have been more than offset by upward revisions to nominal GDP. In the SPU 2011 nominal GDP was put at €156 billion but revisions by the CSO (mainly to earlier years) now put it at €159 billion.

The might be discussions of a ‘tougher’ budget above the projected €3.5 billion but it won’t be because of these figures.

@PR Guy
“It’s only low interest rates that is stopping this country (and others) from imploding”

Low interest rates on deposits as well and today the new guy at Finance seems to have announced an end to the guarantee on deposits. So no return or safety.
Can anyone work out what happened to the 1% money the banks allegedly got from the ECB for up to three years. How can they lose money on mortgages if they borrow at 1% and lend at 4% or thereabouts.
Maybe someone knowledgable could parse the bank numbers and see what the real story is!

In acutely uncertain times, precise predictions are of dubious value; the risks around a forecast are more significant than the forecast itself. Although it is fashionable to decry finance and its models, financiers are ahead of the game here. Back in 1966, the future Nobel Prize winner William Sharpe invented a way of combining expected returns from a security with the expected risk of holding it. It is time now to create something similar for economies: a forecast of output divided by a measure of the risks to the forecast; a Sharpe ratio for economic growth.

@ Hoganmayhew

‘2 quarters of nominal GNP growth says the domestic economy is in rude good health. See table 2 for YoY current price figures’

You know better surely. Like so many ex-colonies, we have a dual economy. The domestic sector is rigid and knackered, with gross fixed capital formation going through the floor, and the export sector is mainly a tax arbitrrage theatre show. Dems de facts, with due respect, as always, to those good folk working hard and producing real goods and services (as opposed to upmarket scams) in FDI.

@paul quigley
Not sure how you manage to get imperialism into what I know better.

Don’t mistake the effect that last year’s good agricultural prices and yields had earlier this year. Don’t mistake that the picture may not be quite so rosy next Q1/Q2. Just because chi-chi coffee shops are closing, doesn’t mean the domestic economy is knackered. Also, just because Mr. Ryanair buys a few planes, doesn’t mean all is well…

The domestic numbers are more complicated than facile “rigid and knackered” and the export sector is comprised of more than tax arbitrage theatre. Some of us may be small sock-puppets, but we get no tax breaks on our service exports.

@ paul quigley: ” Like so many ex-colonies, …”

Paul, Ireland was never a colony. We had our own parliament until 1801 after which we sent more than 100 elected MPs to Westminster. After the 1860s the Irish pariamentary party was organized in such a manner as it exerted political control at Westminster way beyond its numerical strength would warrant. Inconvenient truths are unpleasant. The explanation for the state of the Irish state is to be found (mostly) in the years 1922 – 1989 and the quixotic nature of Irish political parties – which are essentially cartels.

Ok, we were subjected to strict military controls by the Westminster parliament. But these protected the Irish ‘vested interests’ of their day – and that included the Roman C church. They got a serious load of investment capital from Westminster (but no one likes to mention this!).

Slightly off the thread topic. Income inequality in Ireland (as measured by Thiel Index) declined by approx -70% from 2001 -> 2007. It has retraced by approx +150% up to 2009. No data available for 2010 -> 2012. Mid-East seems to be least unequal: Dublin the most.


from your link..
“There is always going to be a lag between the appearance of growth and jobs. We are doing an analysis of the economy sector by sector to see how each sector can outperform their international peers.”

wishful thinking or are we really going to be super efficient in every sector?

then again maybe the googles and apples may sell more and more tax efficient gizmos.

@ hogan

No slight intended, and points taken, but to state that the economy is ‘in rude good health’ was a bit of a provocation 🙂 We have 200k long term unemployed and mass emigration. The PS comprises a large chunk of the domestic economy and is its management in pretty rigid and resistant to any reform.

@ bws

Fair enough, but 18th c Ireland was deeply marked by sectarian exclusion. The economy was organised for the benefit of British metroolitan interests. Much of the infrastructure investment was designed to facilitate more efficient resource extraction.
Of course, we had, and still have our local vested interests, and power was gradually devolved to native Catholic elites, such as during the Balfour reforms. As you imply, this elite has been in many respects dysfunctional, but that incapacity has its roots in the historic abuse/neglect of the native population. The poor of Britain, to be fair, were not treated much better in the construction of the ‘free market’ in labour, and as for India, the less said the better.

Irish Times: Deputy McGrath asked Mr Moran (secretary general, Department of Finance) where growth will come from domestically when unemployment still remains stubbornly high at 14.8 per cent.

“There is always going to be a lag between the appearance of growth and jobs. We are doing an analysis of the economy sector by sector to see how each sector can outperform their international peers.”

Some of you may think this is a positive signal that the new intake of chairborne numbercrunchers are doing some serious work.

John Moran gave a speech last summer at the MacGill gathering, which had many official Newspeak talking points including what I call phony unit labour cost metrics.

So the current initiative may well be to fill in the blanks in a memo titled: ‘Bragging points for Minister’s Budget speech.’

Cut and paste from enterprise agency annual reports and there’s loads of material to show success!

Are they really interested in the facts? the truth?

Is Google our biggest exporter? Do Irish firms really have more FDI in the US than US firms have in Ireland?

Even the facts can be very confusing:

In October when merchandise exports were reported to have jumped 16% in August, Minister Richard Bruton bragged that “Irish exporters are performing extraordinarily well in a tough environment.”

The CSO reported in the same month that industrial production in August was 0.7% lower than in July 2012. On an annual basis production for August 2012 increased by 0.2% when compared with August 2011.

In September industrial production was 13.9% lower than in August 2012. On an annual basis production for September 2012 fell by 13.7% when compared with September 2011.

@ Michael H

Our powers that be have bought into the notion that developing the Irish economy is largely a marketing exercise. It’s all about being ‘on message’, and ‘upbeat’. As you know, we are very good at the storytelling.

Just When You Thought It Couldn’t Get Any Worse

Michael Taft

Just when you though it couldn’t get any worse, along comes the EU Commission with their projections for the Irish economy. It will make grim reading for the Government. All their projections are being undermined. Of course, the EU could turn out to be wrong and the Government right – so we are just dealing with projections. However, with media leaks that the Government will be revising growth downwards in a couple of weeks, even they are heading in the direction of the EU projections. Let’s compare some indicators.

Read on:

@ Fiat

the domestic banks have a combined balance sheet of 600bn or so. Less than 1/6th of this is being funded via ECB or similar. The rest is funded via a mix of retail and wholesale funding, neither of which is particularly cheap (either in terms of nominal rate or in terms of collateralisation requirements), and on top of this most of it is government guaranteed, which requires a fairly expensive fee to be paid to the government.

Also, remember that around 50% of their mortgage books are tracker loans at something more like 1.5%!

The Indo reports today that Anglo, the defunct bank, has 5 managers on a salary of more than €500K plus pensions etc.

190 staff are on between €100K to €190k plus fringe.

Strange isn’t it that it is one of Ireland’s biggest indigenous employers with about 1,000 people?

Even 200 staff seems a lot in respect of a shuttered business.


“It’s a crisis without any sign of an end”

I get where you are coming from but a psychiatrist friend of mine (I wasn’t consulting him I hasten to add) once told me that, “nothing lasts forever, not even pain.”

I’ve found that to be good advice over the years and I doubt that low interest rates will last much past 2013 – but that’s just mho… and er, talking to a range of senior bankers over the past few months. Any trick they can pull to put up rates on loans, cards, mortgages, etc. (but not deposits) they are going to pull – if they think they can get away with it – and they generally think rates will go up in EU and US later next year.

@paul quigley

“As you know, we are very good at the storytelling.”

Or as my old grandad used to say, “the reason why Ireland is so green is because of the amount of bullshit spread across the land.”

Some Good Newz – We may have the best educated young dole queues in the EZ

Overall, the percentage of students who sit the Leaving Cert has risen by 9 per cent over the past decade to 90 per cent. In all, 89 per cent of males are staying on to sit their Leaving Cert exam.

A small gap remains between the sexes, with 92 per cent of females completing second level. The gap is narrowing, though, standing at three percentage points compared with nine percentage points five years ago.

While the percentage of those dropping out from Deis schools remains high, there has also been some improvement in the overall picture. For those who entered second level between 2001 and 2006, the average Leaving Certificate retention rate has increased from 68 to 80 per cent .

exceptions are the underclass ghettos in Limerick and Dublin … fire a single bankeer and 500K would work wonders in these areas ….

@ Seamus Coffey

Thanks Seamus. I should have noted the rhetorical nature of you reply.

“There might be discussions of a ‘tougher’ budget above the projected €3.5 billion but it won’t be because of these figures.”

So when the Irish Times Reports:

‘An adjustment greater than €3.5 billion cannot be ruled out in the forthcoming Budget, secretary general of the Department of Finance John Moran has said.

‘Speaking at the Oireachtas Finance Committee today, Mr Moran left open the possibility of a harsher Budget than planned this December, saying growth forecasts could impact on the Budget.

‘Asked if forecast revisions would have any impact on the Budget, Mr Moran said: “Growth is a key variant in how you do calculations.”’

Mr Moran is being disingenuous?


“Paul, Ireland was never a colony. We had our own parliament until 1801 after which we sent more than 100 elected MPs to Westminster.”

What was catholic emancipation about, then ?
And wasn’t there a Famine at some stage as well? Who decided on food imports?

@ Gavin,

There is a lot more going on that changes to the nominal growth forecasts. I was just making the point that while the reductions in nominal growth are negative for the budget arithmetic, the upwards revisions of nominal GDP are positive for the budget arithmetic of ratios, limits etc.

What does matter is the real changes and downward revision here is unambiguously negative. A more complete analysis would have to pick up the effect of lower than expected economic activity on revenue and expenditure. Working through that would need a lot more than a short comment here. The DoF will provide us with their estimates in a few weeks.


Thank you for that info

Somehow I suspect that the “grand designers” of the Croke Park agreement who took the unusual step of having a 4 year agreement rather than the usual 3 year agreement did not expect things to remain “subdued” until 2014.

At least while we are all being “subdued” throughout 2013 we can be entertained by the spectacle of 65 % of the Public Service (which do not enjoy unduly excessive salaries) pushing for 35% of the Public Service to take a larger share of the forthcoming “pay cull”

Should be fun:)


@Bond. Eoin Bond.

“Also, remember that around 50% of their mortgage books are tracker loans at something more like 1.5%!”

The total AIB funding at June 30th was €130 billion. Estimated the cost of the funding categories at estimated % cost, I come up with the following:

Equity (13B,0%); CB Deposits (27B,1%) Bank Deposits (5B,3 ),Customers CAs(16B, 0%), Customer Demand Deps (10B, 2.25%), Customers Time Deps (38B, 3%), Debt Securities (12B, 4%), Other (9B,0%). Total cost of funds for six month = €1.13 or 1.74%.
AIBs own results show an interest rate cost of approx. 2.2% of funding (1480/129,000)*2). That could be up to .5% higher than it need be.

A few two things are immediately clear.
The cost of funds to AIB is very low by any standards, though it seems to be paying too much for some of that funding.
The big problem the bank has is not the cost of funding and not necessarily its bad debts. As you point out the big issue has to be its direct margin losses on a significant portion of its loan book. i.e Tracker Mortgages.
The conclusion then has to be that no amount of taxpayer funding will be sufficient to offset a continuing year on year margin loss on tracker mortgages.
The interesting point is that if AIB had been put in receivership or liquidation, the liquidator is allowed to set aside all onerous contracts. That may seem unfair, but there will be many tracker mortgage owners than would be able to pay more for their mortgages.
It seems unfair that not only has the taxpayer bailed out the banks for past losses, but we will also be bailing out the bank for future losses on the tracker books.
It is not just the bondholders that are being bailed out.

@ PR Guy

Maybe rates will go up but it is very common when forecasting to do the rising part of the V when looking forward instead of the flat part of the L . Long term US bond rates are very low especially taking inflation into account . IMO things are still very abnormal and the next risk off will be a belter for economic nihilism.

@Joseph Ryan:
I don’t think tracker mortgages are among the type of contracts that can be set aside. It is the mortgagee who is under contract here. The only think the bank provides is credit and the liquidator cannot set that aside. What is the liq. going to do? Ask for the money back? Change the interest rate? To what? Can of worms.


There are usually a minimum of two parties to every contract.
It is a can pf worms, but lets be clear.
Bank losses on trackers mortgages, forever and a day, until the trackers are paid off in 25 or 30 years will be paid by the Irish State. So whatever benefit is going to those who have trackers is being paid for by all the citizens of the country.
Other people would describe that as a social welfare cheque, and they would object strongly if some of the recipients were very well off people.
We need to reflect a little more on who is winning, who is losing and who is paying the price.

[Yes, onerous contracts in a liquidation can be set aside in law. In a liquidation those contracts would be set aside and mortgagees would have to pay a commercial mortgage rate.]

@Joseph Ryan/Bond Eoin Bond

Thanks for addressing this issue. Joseph’s analysis suggests that AIB are perhaps paying too much..
“The cost of funds to AIB is very low by any standards, though it seems to be paying too much for some of that funding.”
I think your figures for various deposits are a bit too high. There has been a concerted move by the banks over the last three months to force down their deposit rates and it seems that they are succeeding. So I would calculate AIB costs a little below your 1.74% ..say 1.5%. That is historically very low.
As you say..trackers are a problem, but not as much of a problem as we are led to believe. Now they are moving to get rid of the guarantee by early next year (mr. Moran of finance to oireachtas committee) this will enhance their profitability.
The question is, why the low take up of LTRO 1% funding?

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