budget 2020: macro-economic backdrop · budget 2020: macro-economic backdrop john mccarthy chief...
TRANSCRIPT
Budget 2020: macro-economic backdrop
John McCarthy
Chief Economist, Department of Finance
Presentation at ESRI Budget Perspectives Conference
13th June 2019
2 An Roinn Airgeadais | Department of Finance
Birds-eye view
• External demand: headwinds picking up
• Latest macro developments
• The labour Market
• The public finances
• ‘Brexit’ casts a long shadow
• Conclusion
3 An Roinn Airgeadais | Department of Finance
External demand: headwinds picking up
4 An Roinn Airgeadais | Department of Finance
UK: business substituting labour for capital
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
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
*
per
cent change
investment and ouptut, y/y growth in the UK economy
investment
GDP
Brexit uncertainty
firms postponing investment
0
2
4
6
8
10
12
01/1
2/1
991
01/1
1/1
992
01/1
0/1
993
01/0
9/1
994
01/0
8/1
995
01/0
7/1
996
01/0
6/1
997
01/0
5/1
998
01/0
4/1
999
01/0
3/2
000
01/0
2/2
001
01/0
1/2
002
01/1
2/2
002
01/1
1/2
003
01/1
0/2
004
01/0
9/2
005
01/0
8/2
006
01/0
7/2
007
01/0
6/2
008
01/0
5/2
009
01/0
4/2
010
01/0
3/2
011
01/0
2/2
012
01/0
1/2
013
01/1
2/2
013
01/1
1/2
014
01/1
0/2
015
01/0
9/2
016
01/0
8/2
017
01/0
7/2
018
per
cent
unemployment rate
50-year low
5 An Roinn Airgeadais | Department of Finance
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
0
1
2
3
4
5
6
7
8
03
/01/2
010
03
/04/2
010
03
/07/2
010
03
/10/2
010
03
/01/2
011
03
/04/2
011
03
/07/2
011
03
/10/2
011
03
/01/2
012
03
/04/2
012
03
/07/2
012
03
/10/2
012
03
/01/2
013
03
/04/2
013
03
/07/2
013
03
/10/2
013
03
/01/2
014
03
/04/2
014
03
/07/2
014
03
/10/2
014
03
/01/2
015
03
/04/2
015
03
/07/2
015
03
/10/2
015
03
/01/2
016
03
/04/2
016
03
/07/2
016
03
/10/2
016
03
/01/2
017
03
/04/2
017
03
/07/2
017
03
/10/2
017
03
/01/2
018
03
/04/2
018
03
/07/2
018
03
/10/2
018
03
/01/2
019
long term interest rates,
per cent
q/q growth rate, per cent
r-g < 0 ?
euro area: re-domination risk emerging?Italy: real and financial developments
48
49
50
51
52
53
54
55
56
57
58
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
201
6Q
1
201
6Q
2
201
6Q
3
201
6Q
4
201
7Q
1
201
7Q
2
201
7Q
3
201
7Q
4
201
8Q
1
201
8Q
2
201
8Q
3
201
8Q
4
201
9Q
1
q-o
-q g
row
th
EA GDP EA PMI
6 An Roinn Airgeadais | Department of Finance
0
1
-3
-2
-1
0
1
2
3
4
197
7
198
0
198
3
198
6
198
9
199
2
199
5
199
8
200
1
200
4
200
7
201
0
201
3
201
6
201
9
perc
en
tage p
oin
ts
yield curve
US recessions
US: near-inversion of yield curve an omen?
49
50
51
52
53
54
55
56
57
0
0.2
0.4
0.6
0.8
1
1.2
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
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
q-o
-q g
row
th
US GDP PMI
7 An Roinn Airgeadais | Department of Finance
China: vulnerabilities weighing on output
0
50
100
150
200
250
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
per
cent
of G
DP
private (=household and corporate) debt
0
2
4
6
8
10
12
201
0 Q
1
201
0 Q
3
201
1 Q
1
201
1 Q
3
201
2 Q
1
201
2 Q
3
201
3 Q
1
201
3 Q
3
201
4 Q
1
201
4 Q
3
201
5 Q
1
201
5 Q
3
201
6 Q
1
201
6 Q
3
201
7 Q
1
201
7 Q
3
201
8 Q
1
201
8 Q
3
201
9 Q
1
year-
on-y
ear
per
cent
change
China: GDP growth [4qma]
higher leverage post-2010
weighing on I, C
8 An Roinn Airgeadais | Department of Finance
Let’ not forget about structural factors - peak’ globalisation?
0
5
10
15
20
25
30
35
40
45
50
20
25
30
35
40
45
50
55
60
65
197
0
197
1
197
2
197
3
197
4
197
5
197
6
197
7
197
8
197
9
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6completion of WTO “Uruguay round”
global financial crisis
Source: World Bank, OECD, BIS, DoF calculations
China’s accession to WTO
TRADE INTENSITY =
world trade as per cent of GDP
FINANCIAL TRADE INTENSITY =
cross-border banking claims as per cent of GDP
decade-long ‘blip’ or fundamental reversal?
9 An Roinn Airgeadais | Department of Finance
Import tariffs (and retaliatory measures) - ½ pp off level of world GDP
$34bn, 25%
$16bn, 25%
$200bn, 10%
$200bn, 25% $300bn, 25%
0%
5%
10%
15%
20%
25%
30%A
pr-
20
18
Ma
y-2
01
8
Ju
n-2
01
8
Ju
l-2
01
8
Au
g-2
01
8
Se
p-2
01
8
Se
p-2
01
8
Oct-
20
18
No
v-2
01
8
De
c-2
01
8
Ja
n-2
01
9
Fe
b-2
019
Ma
r-2
01
9
Ap
r-2
01
9
Ma
y-2
01
9
Ju
n-2
01
9
Ju
l-2
01
9
Au
g-2
01
9
Au
g-2
01
9
tari
ff,
pe
r cent
As it stands, tariffs
will apply to all
$550bn of Chinese
exports to US by
June
Note: size of bubble corresponds to export volume
10 An Roinn Airgeadais | Department of Finance
Latest macro-economic developments
11 An Roinn Airgeadais | Department of Finance
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
€ m
illio
n
increase in exports (nominal) since low-point [4qrs]
exports: 2012q1 pharma exports
"under contract"other_G computer
services
aircraft
leasingroyalties
other
servicesexports: 2018q4
level of exports has doubled since low-point
Exports continue to lead the way, less-so in labour-intensive sectors
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
12 An Roinn Airgeadais | Department of Finance
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
contributions to real MDD, pp
C G b&c core m&e MDD
Low-frequency suggest moderation in H2/18 – higher frequency mixed bag
48
50
52
54
56
58
60
62
Jan-2
01
7
Mar-2
01
7
May-2
01
7
Jul-20
17
Sep-2
01
7
No
v-20
17
Jan-2
01
8
Mar-2
01
8
May-2
01
8
Jul-20
18
Sep-2
01
8
No
v-20
18
Jan-2
01
9
Mar-2
01
9
May-2
01
9
Services PMI
Manufacturing PMI
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
13 An Roinn Airgeadais | Department of Finance
increase in household savings rate last year – some reversal in Q1
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
Q1 2
000
Q1 2
001
Q1 2
002
Q1 2
003
Q1 2
004
Q1 2
005
Q1 2
006
Q1 2
007
Q1 2
008
Q1 2
009
Q1 2
010
Q1 2
011
Q1 2
012
Q1 2
013
Q1 2
014
Q1 2
015
Q1 2
016
Q1 2
017
Q1 2
018
personal consumer spending
household disposable income
savings
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Jan-1
5
Mar-1
5
May-1
5
Jul-1
5
Sep
-15
No
v-15
Jan-1
6
Mar-1
6
May-1
6
Jul-1
6
Sep
-16
No
v-16
Jan-1
7
Mar-1
7
May-1
7
Jul-1
7
Sep
-17
No
v-17
Jan-1
8
Mar-1
8
May-1
8
Jul-1
8
Sep
-18
No
v-18
Jan-1
9
Mar-1
9
12mma
Non-auto retail sales, annual growth rate (per cent)consumption, income and saving, € million [4qrs]
headline
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
14 An Roinn Airgeadais | Department of Finance
“now-casting” modified domestic demand – principal component analysis
-12
-10
-8
-6
-4
-2
0
2
4
6
8
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
per
cen
t ch
ange
Model based MDD MDD Outturn
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2015Q
1
2015Q
2
2015Q
3
2015Q
4
2016Q
1
2016Q
2
2016Q
3
2016Q
4
2017Q
1
2017Q
2
2017Q
3
2017Q
4
2018Q
1
2018Q
2
2018Q
3
2018Q
4
2019Q
1
ye
ar-
on
-ye
ar
pe
r ce
nt
15 An Roinn Airgeadais | Department of Finance
The labour market
16 An Roinn Airgeadais | Department of Finance
1,700
1,800
1,900
2,000
2,100
2,200
Employment 2012q2 Manufacturing Construction Private services Public services Agriculture Employment 2019q1
‘000
increase in total employment (4qma) from low point of crisis
Employment surprise in Q1
y = -0.1042x + 76.454R² = 0.693
y = 0.0787x + 50.801R² = 0.5947
45.0
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
199
9 Q
11
99
9 Q
32
00
0 Q
12
00
0 Q
32
00
1 Q
12
00
1 Q
32
00
2 Q
12
00
2 Q
32
00
3 Q
12
00
3 Q
32
00
4 Q
12
00
4 Q
32
00
5 Q
12
00
5 Q
32
00
6 Q
12
00
6 Q
32
00
7 Q
12
00
7 Q
32
00
8 Q
12
00
8 Q
32
00
9 Q
12
00
9 Q
32
01
0 Q
12
01
0 Q
32
01
1 Q
12
01
1 Q
32
01
2 Q
12
01
2 Q
32
01
3 Q
12
01
3 Q
32
01
4 Q
12
01
4 Q
32
01
5 Q
12
01
5 Q
32
01
6 Q
12
01
6 Q
32
01
7 Q
12
01
7 Q
32
01
8 Q
12
01
8 Q
32
01
9 Q
1
pr_total pr_male
participation rate, 4qma
Demographic induced PR slowdown
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
17 An Roinn Airgeadais | Department of Finance
The philips curve: dead or alive?
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
20152016
2017
2018
y = -5.611ln(x) + 14.302R² = 0.7864
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
wage inflation,
y/y
per
cent
change
unemployment rate, per cent -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Admin & support
Transport & storage
Arts & recreation
Accommodation & food
Wholesale & retail
ICT
Construction
Total economy
Industry
Health & social work
Public admin & defence
Education
Financial & real estate
Professional & scientific
annual change in weekly earnings in 2019 Q1, per cent
18 An Roinn Airgeadais | Department of Finance
The public finances
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
19 An Roinn Airgeadais | Department of Finance
Budgetary implementation: in line with expectations
Revenue side equation
0
10,000
20,000
30,000
40,000
50,000
60,000
Jan-0
0
Jul-0
0
Jan-0
1
Jul-0
1
Jan-0
2
Jul-0
2
Jan-0
3
Jul-0
3
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Jul-0
6
Jan-0
7
Jul-0
7
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
€ m
illio
ns
Excise Duty Income Tax CT VAT other Total
previous peak
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Ja
n-0
4
Ju
n-0
4
No
v-0
4
Ap
r-0
5
Se
p-0
5
Fe
b-0
6
Ju
l-0
6
De
c-0
6
Ma
y-0
7
Oct-
07
Ma
r-0
8
Au
g-0
8
Ja
n-0
9
Ju
n-0
9
No
v-0
9
Ap
r-1
0
Se
p-1
0
Fe
b-1
1
Ju
l-1
1
De
c-1
1
Ma
y-1
2
Oct-
12
Ma
r-1
3
Au
g-1
3
Ja
n-1
4
Ju
n-1
4
No
v-1
4
Ap
r-1
5
Se
p-1
5
Fe
b-1
6
Ju
l-1
6
De
c-1
6
Ma
y-1
7
Oct-
17
Ma
r-1
8
Au
g-1
8
Ja
n-1
9
€ m
illio
ns
health other net voted current expenditure
Expenditure side of equation
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
20 An Roinn Airgeadais | Department of Finance
‘snowball’ main driver of debt reduction; interest burden remains high
-30
-20
-10
0
10
20
30
40
50
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
per
cent
of G
DP
primary balance
snowball
SFA
Change in debt ratio
debt increasing ↑
debt decreasing ↓
0
2
4
6
8
10
12
14
16
18
20
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
EU 28 25th-75th (inter-quartile range)
Ireland
Debt burden: interest / revenue ratio
Source: Annual Debt Report 2019, Department of Finance (forthcoming)
21 An Roinn Airgeadais | Department of Finance
Brexit: casts a long shadow
22 An Roinn Airgeadais | Department of Finance
Forecasting in a highly uncertain environment
2018 2019 2020
GDP 6.7 3.9 3.3
BoP (% GDP) 9.1 8.4 8.0
Inflation 0.7 0.9 1.1
Employment (% change) 2.9 2.2 2.1
Unemployment (%) 5.7 5.4 5.2
GGB (% GDP) 0.0 0.2 0.4
GG debt (% GNI*) 107.3 101.7 93.0
range of outcomes = wide
85
90
95
100
105
110
115
120
2016
2017
2018
2019
2020
2021
2022
2023
2018 =
100
no exit
hard exit
smooth exit
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
23 An Roinn Airgeadais | Department of Finance
Impact of Brexit on Ireland (change from baseline in levels)
-2.4
-3.3
-5.0
-6.0
-4.0
-2.0
0.0
2020 2023 2028
pp
of
GD
P
Brexit impact on level of Irish GDP
Deal Disorderly
24 An Roinn Airgeadais | Department of Finance
Conclusion
25 An Roinn Airgeadais | Department of Finance
Main take-aways
• Difficult juxta-position- strong economy
- serious external risks
: existential threat to some sectors
• “Normal” cyclical slowdown in global economy- momentum has softened
- maturing cycle
- structural factors potentially more worrying
• Brexit casts a long shadow
26 An Roinn Airgeadais | Department of Finance
Disclaimerand other information:
The views expressed in this presentation are those of the presenter and do not necessarily reflect the views of the Department of Finance, the Minister
for Finance or the Government of Ireland. Analysis and forecastsbased on StabilityProgramme,April 2019 Update.
Outturn data are sourced from a variety of sources including the Department of Finance, Central Statistics Office, European Commission (AMECO) and
CentralBank of Ireland.
For the latest publication’s followthe Departmentof Financeon socialmedia:
@IRLDeptFinance Department of Finance Ireland
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