Budget 2020...disorderly Brexit. • The impact of Brexit means the Government will target a budget...

Budget 2020

#Budget2020

Budget 2020…

• Budget 2020 is framed on the assumption of a

disorderly Brexit.

• The impact of Brexit means the Government will target

a budget deficit in 2020.

• The economic forecasts underpinning this Budget

have been endorsed by the Irish Fiscal Advisory

Council (IFAC).

Section 1 Macroeconomic Developments

Section 2 Macroeconomic Outlook

Section 3 Developments in the Public Finances

#Budget2020

4 An Roinn Airgeadais | Department of Finance

External environment: mounting evidence of turning point

0

50

100

150

200

250

300

1997

1998

1999

1999

2000

2000

2001

2002

2002

2003

2003

2004

2004

2005

2006

2006

2007

2007

2008

2009

2009

2010

2010

2011

2011

2012

2013

2013

2014

2014

2015

2016

2016

2017

2017

2018

2018

2019

economic policy uncertainty at all-time high

-2

-1

0

1

2

3

4

5

6

20

13

20

14

20

15

20

16

20

17

20

18

United States

Euro area 'Big 3'

India

Other G20 advanced

Other G20 emerging

G20

Global economic policy uncertainty (12mma), 1999=100 Fixed investment in G20 countries: pp cont. to y/y change

uncertainty holding

back investment

lower investment

weighing on

manufacturing

Fixed

investment

declining


Weaker investment driving a “global manufacturing recession”?

45

50

55

60

65

Aug-2

016

Nov-2

016

Fe

b-2

017

May-2

017

Aug-2

017

Nov-2

017

Fe

b-2

018

May-2

018

Aug-2

018

Nov-2

018

Fe

b-2

019

May-2

019

Aug-2

019

manufacturing recession in Main

Trading Partners?

euro area

UK

US

45

50

55

60

65

Jan-2

012

Jul-2

012

Jan-2

013

Jul-2

013

Jan-2

014

Jul-2

014

Jan-2

015

Jul-2

015

Jan-2

016

Jul-2

016

Jan-2

017

Jul-2

017

Jan-2

018

Jul-2

018

Jan-2

019

Jul-2

019

Manufacturing PMI below

50 since May

(first time since May 2013)

services

PMI_manufacturing: major trading partners (< 50 = contraction) Irish PMIs (< 50 = contraction)

manufacturing

lower investment

weighing on

manufacturing

Irish manufacturing

sector is not immune


Soft data borne out by hard data in Ireland

Contribution to y/y goods export change, pp Modified domestic demand, y/y per cent change

0

1

2

3

4

5

6

7

20

17

Q1

20

17

Q2

20

17

Q3

20

17

Q4

20

18

Q1

20

18

Q2

20

18

Q3

20

18

Q4

20

19

Q1

20

19

Q2

20

19

Q3

Domestic demand

moderating from 2018

levels

-10

-5

0

5

10

15

20

25

201

8M

01

201

8M

02

201

8M

03

201

8M

04

201

8M

05

201

8M

06

201

8M

07

201

8M

08

201

8M

09

201

8M

10

201

8M

11

201

8M

12

201

9M

01

201

9M

02

201

9M

03

201

9M

04

201

9M

05

201

9M

06

201

9M

07

F&B A/Craft Core M&E Chem

Misc Man Fuels Other All

slowing export growth:

outside pharma-chem,

export growth modest

DoF “nowcast”


Not just external sector: household sector increasingly cautious

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

Q1 2

00

0

Q1 2

00

1

Q1 2

00

2

Q1 2

00

3

Q1 2

00

4

Q1 2

00

5

Q1 2

00

6

Q1 2

00

7

Q1 2

00

8

Q1 2

00

9

Q1 2

01

0

Q1 2

01

1

Q1 2

01

2

Q1 2

01

3

Q1 2

01

4

Q1 2

01

5

Q1 2

01

6

Q1 2

01

7

Q1 2

01

8

€m

illio

ns

personal consumer spending

household disposable income

savings

savings rate = 11.4 per cent in Q1 2019

Savings rate: precautionary behaviour

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

year-on

-year % ch

angeye

ar o

n y

ear

% c

han

ge

Consumer Sentiment (3mma), rhs

Core' Retail Sales (3mma), lhs

Retail Sales vs Consumer Sentiment

Weakening consumer

sentiment reflected in

moderation of retail sales

Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


But export portfolio = source of resilience

0

5

10

15

20

25

2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2

Goods exports

Services exports

-5%

0%

5%

10%

15%

20%

2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2

Computer services

Other services

Real export growth, y/y per cent change The importance of services, especially ICT

Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


Employment and wage growth remain strong

4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

12.5

13.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014 2015 2016 2017 2018 2019

un

em

plo

ym

en

t ra

te (

%)

em

plo

ym

en

t g

row

th, y-o

y (

%)

Employment Growth (lhs)

SA unemployment Rate (rhs)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Ad

min

& s

up

port

Tra

nsp

ort/s

tora

ge

Arts

/en

ts/re

cre

atio

n &

oth

er

ICT

Acco

mm

od

atio

n/fo

od

Co

nstru

ctio

n

Fin

/insu

ran

ce

/rea

l esta

te

To

tal e

co

no

my

Wh

ole

sa

le/re

tail

He

alth

& s

ocia

l wo

rk

Ind

ustry

(B to

E)

Ed

uca

tion

Pro

fessio

nal/s

cie

ntific

/tech

nic

al

Pu

blic

ad

min

/de

fen

ce

/co

mp

uls

ory

so

cia

l se

cu

rity

ye

ar-

on

-ye

ar

gro

wth

(p

er

ce

nt)

y-on-y growth, weekly earnings, Q2 2019 (4qma)

Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


Inflation drag from goods prices, while service prices grow strongly…

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2017 2018 2019

NEIG Unprocessed Processed Rents Energy Core Services All-items HICP Core

Average 2018 = 0.7% Average 2019 = 0.9%Average 2017 = 0.3%

#Budget2020




Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


Constructing a disorderly exit economic forecast

• Government decision:

- budget based on disorderly UK exit

• Need to construct ‘no deal’ economic outlook

• Operationalising this involves:

i) create a counterfactual ‘deal’ scenario

ii) apply COSMO model ‘no-deal’ scenario results to the counterfactual

iii) arrive at ‘no deal’ projection

• Sequencing

SPUSpring

Weaker external demand

Summer

Counter-factual

scenario

GDP weaker in

“deal” scenario in 2020

Apply COSMO model

Autumn

Budget 2020

projection

"No-deal" forecasts

Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


Impact of Brexit on Ireland – real GDP

100

105

110

115

120

125

2018 2019 2020 2021 2022 2023 2024

no brexit

deal baseline

no deal

No deal scenario =

3.8 per cent below no

Brexit

Counterfactual deal

scenario = 2 per cent

lower

Level of GDP, 2018=100

100

102

104

106

108

110

112

114

2018 2019 2020 2021 2022 2023 2024

No Brexit

deal baseline

no deal

Employment 2.1 per

cent below ‘no

Brexit’ (c. 53,000)

Counterfactual deal

scenario = 1 per cent

below

Level of employment, 2018=100

Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


Key variables: forecast under disorderly Brexit

year-on-year % change 2019 2020 2021 2022 2023 2024

GDP 5.5 0.7 2.5 2.8 2.7 2.6

GNP 4.3 -0.1 2.4 2.5 2.4 2.3

Nominal GDP 5.9 2.4 3.9 4.3 4.1 4.1

Personal Consumption 2.7 1.4 1.9 2.1 2.3 2.4

Govt Consumption 4.5 3.5 2.0 2.0 2.0 2.0

Investment 50.4 -24.0 -3.6 3.9 3.9 3.9

Exports 10.2 0.9 4.2 4.1 4.0 3.9

Imports 22.6 -6.5 2.9 4.4 4.6 4.5

HICP 0.9 1.3 1.4 1.8 2.0 2.1

GDP Deflator 0.4 1.6 1.4 1.4 1.4 1.4

Employment 2.4 0.8 1.1 1.5 1.7 1.9

Unemployment (rate) 5.2 5.7 5.9 5.9 5.7 5.5

contributions to growth (p.p)*

Final Domestic Demand (exc. stocks) 13.2 -7.2 -0.1 1.8 1.9 2.0

Change in Stocks -0.1 0.0 0.0 0.0 0.0 0.0

Net Exports -7.6 7.9 2.5 1.0 0.8 0.7

Modified Domestic Demand (exc. stocks) 1.8 0.8 1.3 1.4 1.5 1.5

Modified Net Exports 3.8 -0.1 1.2 1.4 1.2 1.1


Risk matrix – firmly tilted to the downside

Downside Upside

Brexit outcome worse than model projection Sectoral strength (ICT, Pharma etc.)

Continued weakness in world demand Brexit – UK exit with a deal

Trade tensions spill over to the EU

Repricing of risk

Oil price – supply shock persists




#Budget2020

Tax performance year to date…

Key points

• Tax revenues of €40.8

billion were received to end

Q3 2019, slightly ahead of

target (up 1.7% or €0.7

billion).

• In year-on-year terms, tax

revenues are up 8.7% or

€3.3 billion.

0

10

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30

40

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60

70

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

€b

illio

ns

2019 Receipts 2019 Profile

Budget 2020 Fiscal Outlook…

2019 2020 2021 2022 2023 2024

General government balance (% of GDP) 0.2 -0.6 -0.2 0.1 0.4 0.7

General government primary balance (% of

GDP)1.6 0.6 0.8 1.1 1.4 1.7

Debt-to-GDP ratio 59.3 56.5 56.4 54.4 53.8 53.0

Debt-to-GNI* ratio 100.2 97.4 97.7 94.9 94.5 93.9

Structural Budget Balance (% of GDP) -0.4 -0.4 -0.5 -0.7 -0.7 -0.5

General government balance…

Key points

• General government balance

of 0.2% of GDP forecast for

2019, deteriorating to -0.6%

of GDP in 2020.

• The deterioration in the

general government balance

next year reflects the impact

of Brexit on the economy and

increased expenditure to

support affected sectors.-12.8

-8.1

-6.2

-3.7

-1.9

-0.7-0.3

0.1 0.2

-0.6-0.2

0.10.4

0.7

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

% of GDP

General government debt…

Key points

• General government debt of

59.3% of GDP forecast for 2019.

This represents a 4.2 percentage

point improvement on the end-

2018 position. This compares to

an expected 3.7 percentage point

improvement at the time of the

spring forecasts.

• This further improves to 56.5% of

GDP in 2020.

• As a percentage of GNI* our debt

ratio for 2019 is 100.2 improving

by 2.8 percentage points to 97.4

in 2020.

0

20

40

60

80

100

120

2018 2019 2020 2021 2022 2023 2024

General Government Debt-to-GDP General Government Debt-to-GNI*

General government debt…

Key Points

• Debt interest payments as a percentage of total

general government revenue is a useful way of

assessing debt sustainability.

• As this measure is dependent on domestic

revenue streams, it is less prone to distortion by

the effects of globalisation on the Irish economy.

• Using this and alternate measures, such as debt-

to-GNI* gives a more accurate read of Ireland’s

level of indebtedness.

• Despite improvements the level of public debt in

Ireland remains high by both historical and

international standards.

• That is why it is crucial that we prioritise the

reduction of this burden – a key factor in ensuring

the continued stability of the public finances.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Debt Interest to Revenue Ratio

#Budget2020

@IRLDeptFinance

www.gov.ie/finance

This presentation is for informational purposes only

No person should place reliance on the accuracy or completeness of

information which is contained in this document and which is stated to have

been obtained from or is based upon trade and statistical services or other third

party sources. Any data on past performance contained herein is no indication

as to future performances.

No representation is made as to the reasonableness of the assumptions made

within or the accuracy or completeness of any modelling, scenario analysis or

back-testing.

All opinions and estimates are given as of the date hereof and are subject to

change.

The information in this document is not intended to predict actual results and

no assurances are given with respect thereto.

Budget 2020...disorderly Brexit. • The impact of Brexit means the Government will target a budget...

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