Updated stability programme of Ireland, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 74/10

On 4 March 2008, the Council examined the updated stability programme of Ireland, which covers the period 2007 to 2010.

After more than a decade of buoyant economic growth, per capita income in the Irish economy is among the highest in the European Union. This development was supported initially by strong export growth and more recently by rapidly rising domestic demand. During this period, public finances improved considerably, thereby allowing an impressive reduction in the public debt ratio.

The economy is now facing a transition to a period of lower growth characterised by a deterioration in competitiveness because of recent adverse productivity and price developments, exacerbated by its exposure to the US and UK economies. On the domestic side, the growth slowdown reflects a return to more sustainable levels of activity in the residential construction sector, weakening asset values and rising unemployment. These developments could prove challenging for public finances, in spite of their overall strong position, given the foreseen weakening in tax revenues and the expectations for higher spending in upgrading public services generated by a prolonged period of budgetary surpluses. The outlook for the public finances in the short and medium term also places additional urgency on addressing concerns about their long-term sustainability associated with population ageing.

The macroeconomic scenario underlying the programme envisages that real GDP growth will fall from 4,8 % in 2007 to 3,5 % on average over the remainder of the programme period. Assessed against currently available information (2), this scenario appears to be plausible. It reflects mainly a large adjustment in the housing sector, offset to a certain extent by a continued recovery in net exports. The programme's projection for inflation appears to be somewhat on the low side for 2008 given recent developments in food and energy prices, but plausible thereafter. Inflation and competitiveness prospects in the outer years of the programme are supported by an improvement in productivity and the downward impact of a slowing labour market on wage pressures. The stability programme also envisages a fall in the external deficit, which is consistent with a weakening of domestic demand.

For 2007, the general government surplus is estimated at 0,5 % of GDP in the December 2007 stability programme against a target of 1,2 % of GDP in the previous update and 0,9 % of GDP in the Commission services' autumn 2007 forecast. This downward revision reflects higher-than-programmed expenditure and a revenue shortfall, both of which were partly offset by a positive 2006 base effect. While the out-turn for central government expenditure in cash terms was broadly in line with budget plans higher-than-planned spending growth occurred in general government, especially in current expenditure on goods and services and capital grants. The revenue shortfall reflected in particular the deterioration in the housing market. The opinion of the Council on the previous update of the stability programme (3) was that ‘the medium-term budgetary position is sound (…). Nonetheless, it would be prudent to maintain room for...