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Irish Economy

The Irish economy is small and highly open. The value of internationally traded goods and services in 2012 was equivalent to 191 per cent of GDP, which amounted to €164 billion for the year. Compared to 2000, this represents an increase in the size of internationally traded goods of 5.3 percent (or 9.7 percentage points, see Figure 1).

Services are the largest component of Irish output: in 2012 they accounted for 67 per cent of gross value added at factor cost, while industry and agriculture represented 31 per cent and 2 per cent of gross value added, respectively (Figure 2). Pharmaceutical products, computer and electronic products, and food accounted for 34.5 per cent, 17.2 per cent and 16.5 per cent of total gross industrial output in 2009.
 
Ireland’s population has grown strongly over the past decade. In 2011 it was 4.6 million, up 17 per cent from 2002. With an average age of 36.1 per cent in 2011, the population is relatively young compared to the rest of the EU.
Figure 1: Size and Openness of the Irish Economy: 2000 – 2012
Figure 1: Size and Openness of the Irish Economy: 2000 – 2012 Figure 2: Gross Value Added at Factor Cost by Sector of Origin: 2012
Figure 2: Gross Value Added at Factor Cost by Sector of Origin: 2012

Between 2000 and 2007, the annual average growth in real GDP and real GNP was 5.7 per cent and 5.0 per cent, respectively (Figure 3). During this time period property prices in Ireland soared by a compound annual growth rate of 11 per cent (Figure 4). However, with the onset of the global financial crisis, the Irish property sector collapsed, with prices of residential properties falling by 51 per cent from their peak in September 2007 to March 2013 (Figure 4). The resulting collapse of the construction and banking sectors meant that the Irish economy entered a very deep recession in 2008. Between 2008 and 2011 real GDP declined by 5.4 per cent, while real GNP declined by 10.1 per cent (Figure 3).
 
Figure 3: Annual Growth in Real GDP and Real GNP: 2000 – 2012
Figure 3: Annual Growth in Real GDP and Real GNP: 2000 – 2012 Figure 4: Residential Property Prices: January 2000 – August 2013
Figure 4: Residential Property Prices: January 2000 – August 2013

Data from January 2000 to December 2004 comes from the TSB/ESRI House Price Index. Data for subsequent periods comes from the index of all national residential properties produced by CSO. The two series were linked in January 2005.


Figure 5 illustrates the impact of developments in economic activity on consumer prices and the unemployment rate. In the early part of the decade the Irish economy recorded relatively high inflation rates combined with a very low unemployment rate. Between 2000 and 2008, annual inflation in consumer prices, as measured by the CPI, meant that the average price level rose by 34.7 per cent. In 2009 as the recession deepened consumer prices fell sharply, so that by 2011 consumer prices were back at 2007 levels.

Between 2000 and 2007 the unemployment rate on ILO basis averaged 4.4 per cent per annum. With the onset of recession the level and rate of unemployment increased substantially. It was estimated at 14.7 per cent in 2012, and was higher for men than women. In addition, Figure 6 shows that labour participation rates were also affected by the recession. While the overall participation rate increased by 8 per cent between 2000 and 2007, between 2008 and 2011, the overall participation rate fell back to 2004 levels. The fall in participation was higher for men than for women.
Figure 5: Annual Inflation and Unemployment Rates: 2000 – 2012
Figure 5: Annual Inflation and Unemployment Rates: 2000 – 2012


Figure 6: Annual Average Labour Participation Rate : 2000 – 2012
Figure 6: Annual Average Labour Participation Rate : 2000 – 2012

The participation rate is on ILO basis and is the proportion of population aged over 15 years that is in the labour force.


Figure 7 illustrates the destructive consequences of the recession for Irish public finances. While government receipts exceeded expenditures prior to 2008, the situation reversed sharply in subsequent years. The deficit, as measured by the general government balance, widened from balance in 2007 to 7.3 per cent of GDP in 2008 and 13.8 per cent in 2009, before it increased to 30.5 per cent of GDP in 2010 due to substantial government support to Irish banks that was required to prevent the collapse in the Irish banking system. (Excluding support to the banking system, the deficit was 11.5 per cent of GDP in 2009 and 10.6 per cent of GDP in 2010). In 2011 the deficit narrowed to 13.1 per cent of GDP, and fell further to 7.6 per cent of GDP in 2012.
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Figure 7: General Government Balance: 2000 – 2012
Figure 7: General Government Balance: 2000 – 2012

Figure 8 (below) shows that until 2007 the levels of Irish public debt were low and declining. Ireland’s national debt fell from 34 per cent of GDP in 2000 to 20 per cent of GDP in 2007, and its general government debt fell from 38 per cent of GDP in 2000 to 25 per cent of GDP in 2007.

As a consequence of the very deep recession which began in 2008, combined with significant levels of public money injected into the Irish banking system in 2009, 2010 and 2011, the level of public debt soared. National debt increased from 20 per cent of GDP in 2007 to 84 per cent of GDP in 2012, and the general government debt increased from 25 per cent of GDP in 2007 to 117 per cent of GDP in 2012.
Figure 8: Government Debt: 2000 – 2012
Figure 8: Government Debt: 2000 – 2012


As a small, trade-dependent economy, Ireland’s ability to recover from the crisis depends highly on the future of its trading partners and their ability to recover from the Great Recession and the European debt crisis. For the two-year macroeconomic forecasts for the Irish economy in the context of current trends in both domestic and international economic prospects please see our Spring 2014 Quarterly Economic Commentary.