stability programme, april 2020 update › 73248 › fff232e2d2ab485ab51deed2db23... ·...
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Stability Programme, April 2020 Update
John McCarthy
Chief Economist, Department of Finance
21st April 2020
2 An Roinn Airgeadais | Department of Finance
Birds-eye view
• External backdrop: global pandemic
• Economic outlook
• Fiscal outlook
• Risks and alternative scenarios
3 An Roinn Airgeadais | Department of Finance
External backdrop: global pandemic
4 An Roinn Airgeadais | Department of Finance
Globally-synchronised shock
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
05/0
1
12/0
1
19/0
1
26/0
1
02/0
2
09/0
2
16/0
2
23/0
2
01/0
3
08/0
3
15/0
3
22/0
3
29/0
3
05/0
4
China
Italy
Japan
South Korea
Ireland
Portugal
Belgium
Spain
Saudi Arabia
Pakistan
Rest EU
Canada
Russia
Switzerland
Turkey
Egypt
Mexico
Brazil
India
UK
Iran
Share of world economy with containment measures Cumulative number of Covid-19 cases globally (to mid-April)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
20
/01
03
/02
17
/02
02
/03
16
/03
30
/03
13
/04
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External forecasts - ….
GDP, annual growth rate in per cent 2019 2020 2021
UK 1.4 -6.5 4.0
Euro area 1.2 -7.5 4.7
US 2.3 -5.9 4.7
Global economy 2.9 -3.0 5.8
Other key inputs
World trade growth, per cent change 0.9 -11.0 8.4
Oil prices, $ per barrel 64.1 39.2 41.1
€1 = stg£X 0.88 0.89 0.89
€1 = $X 1.12 1.11 1.11
Source: IMF, except oil prices (futures data) and exchange rates (technical assumption of unchanged rates as per end-March)
6 An Roinn Airgeadais | Department of Finance
Economic outlook
7 An Roinn Airgeadais | Department of Finance
A ‘black swan’: unparalleled shock to the Irish economy
• Short-term impact
= containment / restrictions: demand-side (lower demand for G&S)
: supply-side (ability of firms and labour to produce G&S)
• (possible) medium-term impact
= scarring effects (‘exit’ rates): workers exit labour market (unemployment, participation rates)
: firms exit market supply-side (lower investment, bankruptcy)
• Policy = minimise exit rate for capital / labour
• SPU: scenario not forecast
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GDP: -10½ per cent in 2020 baseline
60
70
80
90
100
110
120
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2020 2021
SPU projections, April
January forecasts
Baseline scenario for GDP levels, 2018q4=100
decline of 10.5% in 2020
partial recovery :::
Level of GDP at end-2021
= 10.5% below pre-crisis
path (c €10 bn).
Indicative quarterly profiles: q/q per cent change
q1 q2 q3 q4 2020
GDP -5 -18 8 7 -10.5
MDD -4 -29 16 14 -15.1
Consumption -5 -25 15 12 -14.2
MDD = modified domestic demand
The q1 figures for all variables informed by ‘nowcasts’ (see annex)
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Full-employment to record unemployment : in two quarters
0%
5%
10%
15%
20%
25%
Q1 2
01
6
Q3 2
01
6
Q1 2
01
7
Q3 2
01
7
Q1 2
01
8
Q3 2
01
8
Q1 2
01
9
Q3 2
01
9
Q1 2
02
0
Q3 2
02
0
Q1 2
02
1
Q3 2
02
1
peak 22% in q2
projections
1,800
1,900
2,000
2,100
2,200
2,300
2,400
Q1 2
01
6
Q3 2
01
6
Q1 2
01
7
Q3 2
01
7
Q1 2
01
8
Q3 2
01
8
Q1 2
01
9
Q3 2
01
9
Q1 2
02
0
Q3 2
02
0
Q1 2
02
1
Q3 2
02
1
Unemployment rate to peak in second quarter
annual average une. rate
= c.14% in 2020
Employment: large fall followed by partial recovery
projections
c.220,000 job losses
this year (-9.3%)
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Fiscal outlook
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Policy response: swift and forcefulDate Measure € billion
employee / household / business supports : of which 4.8
1. employee supports
09-Mar Self-isolation unemployment benefit; sick pay for self-isolation
24-Mar Wage subsidy scheme; pandemic unemployment benefit
2. household supports
18-Mar Payment breaks available of up to 3 months on mortgage and personal loans
18-Mar Stamp duty on credit cards deferred by 3 months
16-Mar LPT deferred by 2 months
3. business supports
09-Mar Liquidity funding for affected businesses
13-Mar Interest and penalties for late certain payments by employers suspended
13-Mar March 2020 RCT rate review suspended (construction sector)
18-Mar Payment breaks available of up to 3 months on business loans
20-Mar Rates payments for certain impacted sectors deferred until May
09-Apr Further liquidity funding & loan schemes for SMEs
other supports : of which 2.0
1. health sector supports
09-Mar Improving capacity, increasing staffing, overtime
25-Mar Securing capacity of private hospitals
07-Apr Additional funding (Covid-19 Action Plan) and supports for nursing homes
13-Mar Customs ‘green routing’ for critical pharmaceutical goods
2. financial sector measures
18-Mar Central Bank reduced the Counter-Cyclical Buffer (CCyB) from 1% to 0%
3. housing sector supports
19-Mar Moratoriums on evictions and rent increases for duration of Covid emergency
19-Mar Notice period for tenancies of less than six months increased to 90 days
19-Mar Flexibility for BTL landlords to facilitate forbearance to affected tenants
Total measures 6.8
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Severe impact on the public finances
Budget balance [GGB, per cent GDP]Taxation revenue, annualised = 4-quarter rolling sum € bn.
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
50,000,000
55,000,000
60,000,000
65,000,000
Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021
-0.7
-0.3
0.1
0.4
-7.4
-4.1
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2016 2017 2018 2019 2020 2021
projections projections2020 forecast = €49.6 bn.
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Temporary increase in public debt; minimal redemptions next year
Redemptions 2020 – 2030, € billionGross debt
40
50
60
70
80
90
100
110
120
130
201
5
201
6
201
7
201
8
201
9
202
0
202
1
debt-to-GDP ratio
debt-to-GNI* ratio
0
2
4
6
8
10
12
14
16
18
20
202
0
202
1
202
2
202
3
202
4
202
5
202
6
202
7
202
8
202
9
203
0
Fixed Rate/Amortising Bonds
Index Linked Bond
Floating Rate Bonds
UK Bilateral
EFSF
EFSM
Other MLTprojections
Note: EFSM loans automatically rolled-over by European
authorities and do not need to be re-financed in 2021
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Deterioration in fiscal situation in line with other advanced economies
Increase in debt ratio in 2020, pp GDP [IMF for EA MS]Headline deficit for 2020, per cent of GDP [IMF data for EA MS]
-10.0
-9.0
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
ES FR GR BE IT EE LT EA IE MT AT PT FI SI NL SK DE LV LU CY
0
5
10
15
20
25
LU CY SI LV MT SK DE NL FI IE EE EA AT LT BE FR PT ES IT GR
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2019 2020 2021
Macroeconomic, y/y per cent change (unless stated)
GDP 5.5 -10.5 6.0
Modified Domestic Demand 3.0 -15.1 8.2
Employment 2.9 -9.3 5.5
Unemployment rate, per cent of labour force 5.0 13.9 9.7
Balance of payments (modified basis), per cent of GNI* 6.3 4.7 4.5
Fiscal
General government balance, per cent of GDP 0.4 -7.4 -4.1
General government debt, € bn €204 bn €218 bn €232 bn
General government debt, per cent of GDP 59 69 68
General government debt, per cent of GNI* 99 125 122
Summary: macroeconomic and fiscal projections
16 An Roinn Airgeadais | Department of Finance
Risks
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Key risk = second wave / mutation / delay in vaccine
scenario analysis: GDP levels, 2018q4=100
Indicative recovery profiles: y/y per cent change
Recovery
begins2020 2021
GDP_baseline Q3_2020 -10.5 6.0
GDP_downside Q4_2020 -13.8 8.6
GDP_severe downside Q1_2021 -15.3 8.1
80
90
100
110
120
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2020 2021
Downside Severe downside SPU projection Pre-pandemic baseline
18 An Roinn Airgeadais | Department of Finance
Annex
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Consumer spending – behavioural changes
Consumer spending, 2018q4=100 Household savings rate, per cent of disposable income
60
70
80
90
100
110
120
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2020 2021
SPU projections, April
January forecasts
gradual recovery but
‘lingering’ effects
decline of 14% in 2020
0
2
4
6
8
10
12
14
16
18
2016 2017 2018 2019 2020 2021
Household savings:
1. ‘forced’
2. precautionary
3. balance sheet repair
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Uncertainty: firms postponing investment
Modified investment spending, 2018q4=100 Contributions to modified investment, pp
0
20
40
60
80
100
120
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2020 2021
SPU projections, April
January forecasts
y/y decline of 37% in 2020
1.3
-37.2
22.5
-50
-40
-30
-20
-10
0
10
20
30
2019 2020 2021
Building & construction
Core M&E
Other
Modified investment
containment measures
in construction sector a
significant drag
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Collapse in external demand to reduce exports
Contribution to export y/y change, ppExports of goods and services, 2018q4=100
60
70
80
90
100
110
120
130
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2020 2021
SPU projections, April
January forecasts
y/y decline of 7.7% in 2020 12.3
-7.7
7.5
-10
-5
0
5
10
15
2019 2020 2021
Pharma
ICT
Aircraft leasing
Contract manuf
Tourism
Other
Total
22 An Roinn Airgeadais | Department of Finance
Risk-off: tightening of financial conditions
Credit markets : widening spreads in riskier segmentsEquity markets : some losses paired back
0.0
2.0
4.0
6.0
8.0
10.0
12.0
20
/09
03
/10
16
/10
29
/10
11
/11
24
/11
07
/12
20
/12
02
/01
15
/01
28
/01
10
/02
23
/02
07
/03
20
/03
02
/04
15
/04
'B' rated corporate bonds
US 10yr bond
45
55
65
75
85
95
19
/02
22
/02
25
/02
28
/02
02
/03
05
/03
08
/03
11
/03
14
/03
17
/03
20
/03
23
/03
26
/03
29
/03
01
/04
04
/04
07
/04
10
/04
13
/04
16
/04
Dow Jones EuroStoxx 600 ISEQ All Share
23 An Roinn Airgeadais | Department of Finance
Other key variables
Exchange rates : volatilityOil prices: demand and supply factors at work
20
30
40
50
60
70
04
/19
05
/19
06
/19
07
/19
08
/19
09
/19
10
/19
11
/19
12
/19
01
/20
02
/20
03
/20
04
/20
Oil prices weaker on lower global demand and increased
0.82
0.84
0.86
0.88
0.9
0.92
0.94
0.96
1.06
1.07
1.08
1.09
1.1
1.11
1.12
1.13
1.14
1.15
15
/10
/19
29
/10
/19
12
/11
/19
26
/11
/19
10
/12
/19
24
/12
/19
07
/01
/20
21
/01
/20
04
/02
/20
18
/02
/20
03
/03
/20
17
/03
/20
31
/03
/20
14
/04
/20
USD per euro GBP per euro
24 An Roinn Airgeadais | Department of Finance
International: ‘hard’ data now catching up with soft data
Soft data = purchasing managers indices Hard data = industrial production
-15
-10
-5
0
5
10
07/1
9
08/1
9
09/1
9
10/1
9
11/1
9
12/1
9
01/2
0
02/2
0
03/2
0
Euro Area
U.K.
U.S.
China
Germany
25
30
35
40
45
50
55
10/1
9
11/1
9
12/1
9
01/2
0
02/2
0
03/2
0
Euro Area
U.K.
U.S.
China
Germany
25 An Roinn Airgeadais | Department of Finance
Irish economy in q1: ‘now-casts’ (paper published today)
Modified Domestic Demand
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
20
00
M0
3
20
01
M0
3
20
02
M0
3
20
03
M0
3
20
04
M0
3
20
05
M0
3
20
06
M0
3
20
07
M0
3
20
08
M0
3
20
09
M0
3
20
10
M0
3
20
11
M0
3
20
12
M0
3
20
13
M0
3
20
14
M0
3
20
15
M0
3
20
16
M0
3
20
17
M0
3
20
18
M0
3
20
19
M0
3
20
20
M0
3
DoF estimate = -2.9 per cent
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
20
18
Q1
20
18
Q2
20
18
Q3
20
18
Q4
20
19
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
20
Q1
Underlying Domestic Economic Activity
‘sudden-stop’
in March
Value shows deviation
from historical ‘norm’
[ 0 = norm / historical average ]
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Additional research published by DoF today
• Chart-pack: real-time economic and financial indicators
https://www.gov.ie/en/publication/603576-real-time-economic-and-financial-developments/
• Where are we now? Examining Irish Economic Developments in Real-Time
https://www.gov.ie/en/publication/e6b3a7-where-are-we-now-examining-irish-economic-developments-in-real-time/