Country Report Ireland October 2009

Outlook for 2010-11

• The economy will suffer depression-type conditions during 2009-10, because of the collapse in the construction sector and depressed private consumption.
• The Economist Intelligence Unit's central forecast is that the coalition government will remain in office, but the risk of a premature election (that is, before 2012) is considerable.
• The budget deficit is forecast to average 13% in 2009-11. The risk of default (or a bail-out to prevent this) is small, but real.
• The Irish banking system is in a precarious state despite liability guarantees and public recapitalisation. In September the government confirmed that it would buy non-performing loans with a book value of ???77bn.
• On October 2nd Irish voters endorsed the EU's Lisbon treaty in a referendum, which provides for changes to the bloc's institutions and structures. The result will remove uncertainty about Ireland's position in the bloc.

Monthly review

• Following their initial rejection of the Lisbon treaty in June 2008, 67% of Irish voters backed the treaty on October 2nd. Among other things, the vote provided a rare success for a beleaguered coalition government.
• The two parties comprising the coalition, Fianna Fail and the Green Party, agreed a revised programme for government on October 9th. It was endorsed overwhelmingly by Green Party members the following day.
• The programme, which was heavily influenced by the Greens, contains commitments to impose a carbon tax and water charges; the outlawing of corporate donations to political parties; and public sector reforms.
• In mid-September the government published a bill for the establishment of an agency which will be tasked with removing non-performing loans from banks' balance sheets. It is highly controversial and opposed by other parties.
• In the first nine months of 2009, the exchequer deficit stood at ???20.2bn, up from ???9.4bn in the same period of 2008. The ???11bn increase was almost equally attributable to higher spending and lower receipts.
• The year-on-year decline in total tax revenue in the third quarter stood at 15.6%, little changed on the decline registered in the first half of 2009.
• National accounts data for the second quarter of 2009 suggest that the rate of the Irish economy's decline may be beginning to ease. On a quarter-on-quarter basis, GDP was unchanged.
• In the second quarter of 2009, Ireland had 1,938,500 people in employment, a year-on-year fall of 174,300 or 8.2%.