Oecd Economic Surveys : Ireland 1980-1981.

71 Pages·4.82 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
IRELAND
JANUARY 1981
BASIC STATISTICS OF IRELAND
THE LAND
Area (thousand sq. km) 70 Population of major cities,
Agricultural area, 1978, 1979 census (thousands):
as per cent of total area 69 Dublin (County and Co. Borough) 984
Cork, Co. Borough 138
Limerick, Co. Borough 61
THE PEOPLE
Population (April 1979) 3368217 Immigration:
No. of inhabitants per sq. km 49 Annual average 1971-1979 13617
Increase in population: Annual average per thousand
Annual average 1971-1979 48746 of population 4.3
Natural increase in population: Labour force, total, April 1979 1 152000
Annual average 1971-1979 35129 Civilian employment in:
Agriculture, forestry and fishing 220000
Industry and construction 335000
Other sectors 496000
THE GOVERNMENT
Public current expenditure on goods Composition of Parliament(endNov.1980):
and services, 1979 seats
(as per cent of GNP) 20 Fianna Fail 83
Genera] government current revenue, Fine Gael 45
1979 (as per cent of GNP) 36 Labour 17
Public debt, 31st December 1978 Others 3
(as per cent of central government
current revenue 1978) 259 Last general election: June, 1977
FOREIGN TRADE
Exports: Imports:
Exports of goods and services, as per Imports of goods and services, as per
cent of GNP, 1979 cent of GNP, 1979 71
Main exports, 1979 (per cent oftotal): Main imports, 1979 (per cent of total):
Machinery and electrical goods Machinery and electrical goods 20
Meat and meat preparations Petroleum, petroleum products and
Dairy products and birds* eggs related materials 12
Textile manufactures Textile manufactures 5
Live animals chiefly for food Iron and steel 3
Articles of apparel and clothing Main suppliers, 1979 (per cent of total):
accessories United Kingdom 50
Medicinal and pharmaceutical Other European Economic
products Community 22
Metalliferous ores and metal scrap United States 9
Main customers, 1979 (per cent of total)
United Kingdom 46
Other European Economic
Community
United States
THE CURRENCY
Monetary unit: Irish pound Currency unit per US dollar,
average of daily figures:
Year 1979 0.49
November 1980 0.51
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS | A RCH1VES
I RÉFÉRENCE
DOC PRÊTÉ
RETOUR BUREAU 60
IRELAND
JANUARY 1981
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December 1960, which provides that theOECD shall promote policies
designed:
to achievethe highestsustainableeconomicgrowth and employ¬
ment and a rising standard ofliving in Member countries, while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment ofthe world economy;
tocontributetosoundeconomicexpansioninMemberaswellas
non-membercountriesin theprocess ofeconomic development;
to contribute to the expansion ofworld trade on a multilateral,
non-discriminatory basis in accordance with international
obligations.
The Members ofOECD are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, the Federal Republic ofGermany, Greece,
Iceland, Ireland,Italy,Japan, Luxembourg, theNetherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialistFederalRepublicofYugoslaviaisassociated in certain
work oftheOECD,particularlythatoftheEconomic andDevelopment
Review Committee.
TheannualreviewofIreland
by the OECD Economic andDevelopment Review Committee
tookplace on 12th December 1980.
©OECD, 1981
Queriesconcerningpermissionsortranslation rightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction
I Recentdevelopments 6
Demand and output 6
Labourmarket 10
Prices and costs 14
Externaltradeand balanceofpayments 17
II Economicpolicy 21
Fiscalpolicy 21
Monetarypolicy 24
Interestandexchangerates 28
Wages policy 30
III Growthandinflationinthemediumterm 31
Thebackgroundofstructural change 32
Theevolution ofprices and costs, 1961 to 1979 35
Priceand wagerelationships 38
Outputand thebalanceofpayments 40
IV Short-termprospectsandpolicyconclusions 41
Short-termprospects 41
Policy conclusions 43
Annexes
I Relationshipsdeterminingwages,pricesandimports 47
II Wagesandprices;theinstitutionalsetting 52
III Calendarofmaineconomicevents 53
Statistical annex 60
TABLES
Text
1 ExpenditureonGDP 6
2 Household appropriation account 8
3 Employmentchanges, 1978 and 1979 11
4 Structuralchangesinindustrialemployment 11
5 Recentlabour markettrends 12
6 Recenttrends in costs andprices 14
7 Balanceofpayments 17
OECD Economic Surveys
8 Components ofthetradebalance, 1977 to 1980 18
9 External trade,values 20
10 Public sector revenue and expenditure 22
11 PublicCapitalProgramme 24
12 Associated banks, liabilities and assets 25
13 Money supply formation 27
14 Effecton wagerates ofthebasic termsoftheNational
Agreements, 1978 to 1980 31
15 Sectoral trends, 1960 to 1979 33
16 Components ofGDP and externaltransactions, 1955 to 1979 34
17 External trends 35
18 Trends in prices, 1961 to 1979 36
19 Thedevelopmentofincomes, 1961 to 1979 38
20 Short-term prospects 42
Statistical annex
A Expenditureon gross national product 60
B Production, employment and othereconomicindicators 61
C Prices and wages 62
D Balanceofpayments 63
E Foreign trade and payments 64
DIAGRAMS
Text
1 Short-term indicatorsofdemand 7
2 Indicators ofconsumerdemand 9
3 Employment and unemployment 13
4 Componentsofpricechanges 15
5 Earnings, productivity and unitwagecosts in manufacturing 16
6 Import and exporttrends 19
7 Money supply and private credit 26
8 International interestratedifferentials 29
9 Comparativepriceand exchangeratedevelopments 37
10 Factor shares 39
Annex I
A Wholesaleprices 48
B Consumerprices 49
C Hourly earnings 50
D Importvolumes 51
INTRODUCTION
Progressin implementingthemedium-term developmentstrategy embarked onin
mid-1977 and designed to achieve rapid growth ofoutput and employment consistent
with lower inflation and a viable external position has been hampered over the last
twoyears by both external and domestic influences. Reflecting the sharp rise in oil
prices since the end of 1978, the expansion ofdemand through 1978 and into 1979,
and weakening export demand, the current external deficit widened markedly in 1979
to the equivalent of 10per cent ofGDP. Althoughtherewas animprovementin 1980,
the current accountdeficitremained substantial. Higheroilpriceswerealso animport¬
ant factor behind the sharp acceleration ofinflation in both years. The impact ofthe
oil priceincreaseswascompounded atfirstby adeclinein agricultural output andlater
weakening agricultural prices. As a consequence, the growth of real GDP has been
sluggish and unemployment rose in 1980 reflecting a significantincreasein the labour
force and a slower growth of employment. Monetary conditions were tightened in
1979 and policy has been successful in achieving its principal aims ofprotecting the
level of official external reserves and adjusting to membership of the European
Monetary System. Fiscal policy to be contractionary has not changed
much, the Exchequer borrowing requirement remaining at about its 1978 level of
13 per cent ofGDP; this development reflected partly the effects ofthe weakening of
world trade and the need to counter the increase in unemployment.
In the absence of further large external shocks, the outlook is for a moderate
acceleration in the growth of real GDP in 1981. The terms of the second National
Understanding which also covers employment, taxation and social expenditures
together with a considerable slowdown in inflation, are expected to allow some in¬
crease in real non-agricultural incomes and a recovery in private consumption. Fixed
investment, which fell in 1980, seems likely to berelatively buoyant and the ending of
destocking will make apositivecontribution to growth. However, theriseinrealGDP
is unlikely to be sufficient to absorb the probable increase in the labour force and at
the same timereduceunemployment. The currentexternal deficit will remain atahigh
level. The sizeable external constraint, the high level ofthe Exchequer borrowing re¬
quirement, and continuing strong inflationary pressures would seem to necessitate
tight demand management.
Economic performance in 1979 and 1980 is reviewed in Parti ofthis Survey,
while PartII analyses the main developments in economic policy over the same per¬
iod. In PartIII, the inflationary mechanism over the medium term is examined
together with the interaction of domestic and external sources of inflation, employ¬
ment, output and investment. The prospects for 1981 are discussed in PartIV which
also contains the policy conclusions arising out ofboth the short and medium-term
issues discussed in the Survey.
OECD Economic Surveys
I RECENT DEVELOPMENTS
Demand and output
Thegrowth ofrealGDP hasbeen much slowerduring 1979 and 1980 thanin the
two preceding years. Thedeceleration from an annual average ofover 6 per centto
about 1 Viper cent' mirrored in largemeasuredevelopmentsintheOECD areaas a
whole, particularly the deflationary impact of the oil price rise, but its timing and
magnitude were also significantly influenced by domestic developments and
particularly so in 1979 by a sharp declinein agricultural output2. Non-farmGDP and
industrial production3 which more accurately reflect the underlying development of
the economy indicate a similar, if steadier, slackening of the rate of growth. The
evolution of output has broadly corresponded with final demand, the changes in
stockbuilding having an approximate counterpart in movements in the foreign
balance. Although demand developments, the most conspicuous features of which
were the weakening ofprivateconsumption and the markedturnaround between 1979
and 1980infixed investment, reflectedlargely adverseterms-of-trademovements, they
were also influenced by the adjustment ofpolicy from being strongly expansionary in
late 1977 and 1978 to a more neutral stance over the last twoyears.
Private consumption has moved broadly in line with household purchasing
power over recent years (Table2), but in 1979 and 1980 only because declining farm
Table 1 Expenditure on GDP
Percentage volume changes (1975 prices), annual rates
1979
£ million Average 1976 1977 1978 1979 19801
current 1970-1976
prices
Private consumption 4550 2.2 1.8 4.0 8.8 3.6 -n
Public consumption 1 450 6.7 5.8 2.3 4.3 3.5 i
Gross fixed capital formation 2 330 4.3 6.6 6.3 17.3 15.6 -10
Final domestic demand 8330 3.4 3.6 4.2 10.0 6.6 -3i
Stockbuilding3 +75 -0.3 1.7 2.1 -1.7 0.5 -33
Total domestic demand 8405 3.1 5.3 6.2 8.2 7.0 -6
Exports of goods and services 3 943 5.7 8.1 13.5 12.7 6.7 1\
Imports of goods and services -5 113 4.3 14.4 13.0 15.2 14.7 -61
Foreign balance1 -1 170 0.1 -3.5 -0.9 -2.6 -5.8 83
GDP at market prices 7 235 3.6 2.0 5.8 6.3 1.9 14
Memorandum items:
GDP at factor cost 6686 3.5 1.8 5.9 6.4 n.a. n.a.
Non-agricultural GDP3 n.a. 3.6 4.6 5.2 7.3 4 1
1 OECDSecretariatestimates.
2 Contribution to growth inGDP.
3 GDP at constant (1975) factor cost, exclusive of agriculture, forestry and fishing. Estimate for 1979
based on changes in GDP at marketprices and volume ofnetagricultural output.
Sources: National Income and Expenditure, 1978, Stationery Office, Dublin; Economic Review and
Outlook, summer 1980, StationeryOffice, Dublin.
1 Based on Secretariat estimate for 1980.
2 Thevolumeofnet agricultural outputroseby almost 10percentin 1977, declinedby asimilar
proportion in 1979, and recorded moderate increases in 1978 and 1980.
3 The rateofgrowth ofmanufacturing production decelerated from almost9percent in 1978 to
2 Viper cent (year-to-year) in the first halfof 1980.
Ireland
Diagram 1 Short-term indicators ofdemand
INDEX 1975 = 100 INDEX 1975 = 100
140 r 140
PRIVATE CONSUMPTION
130 I- 130
120 - 120
RETAILSALES.VOLUME, S.A.
110 110
100 100
90 90
INDEXES 1975 = 100 INDEXES 1975 = JOO
200~T-
200
FIXED INVESTMENT
r^\
180 - 180
V.(cid:9)
160 - ^J 160
IMPORTS OF CAPITAL GOODS, /
VOLUME,S.A.' /
140 I- r~Xo' \\ 140
120 / '^/ 120
^s DOMESTIC SALLS OF CEMENT, S.A.
100 100
80 80
i MILLION, 7975 PRICES IMILLION. 1975 PRICES
-50~F -50
TRADE BALANCE
-100 -100
-150 _ -150
MERCHANDISE TRADE BALANCE, S.A.
-200
-250 _ -250
STOCK-BUILDING2
40 - 40
EXCESS STOCKS OF FINISHED PRODUCTS
MATERIAL SUPPLY CONSTRAINT
- 20
0 h - 0
-20 Li J -20
1976 19.7 1978 1979 1980
1 Deflated by import unit value index for manufactures.
2 Three-month moving average ofsurvey responses:
/') Balance reporting excessive stocks offinished products;
ii) Percentage reporting raw material supply as a constraint in production.
Sources: EconomicSeries and TradeStatistics ofIreland, CSO;MonthlyIndustrialSurvey,
CII/ESRI.
OECD Economic Surveys
Table 2 Household appropriation account
Percentage changes on previous year
1976 1977 1978 1979= 1980*
Nominal terms
Agricultural income 12.7 35.8 13.2 -9.6 ]
Non-agricultural wages, salaries I
and pensions 19.0 16.8 17.4 20.0 > m
Transfer income 17.9 15.0 14.9 18.9 \
Other personal income 24.3 13.2 25.6 26.2 ;
Real terms'
Personal income -0.1 5.4 9.5 3.6 j
Disposable income -2.4 5.0 10.3 3.1 -3~
Private consumption 1.8 4.0 8.8 3.6 -H
Ratios
Average tax ratio 15.3 15.7 15.1 15.5 m
Average savings ratio 21.7 22.4 23.4 23.1 2H
1 Deflated by increase in consumption deflator.
2 DirectcommunicationfromDepartmentofFinance, Dublin.
3 OECDSecretariatestimates.
Sources: National Income and Expenditure, 11978; Economic Review and Outlook, summer 1980.
incomes, higher inflation and fiscal drag4 were offset by reductions in the saving
ratio5. These successive declines in saving propensities may have been influenced by
the high level ofaccumulated savings from preceding years6 as well as aconsiderable
shift in incomedistribution towards employees. Theretail salesindexindicatesthatthe
intra-year pattern ofconsumer spendinghasbeen somewhaterratic,chieflybecauseof
fluctuations in purchases ofdurables (Diagram 1). Theimpactofanticipatory buying,
related to taxation measures in theFebruary 1980 Budget, was particularly markedin
the motor trade and contributed substantially to the buoyancy ofretail sales which in
thefirst quarter of 1980 were over 3 per cent above the average ofthe previous year.
The expected subsequent reaction, which occurred in the second quarter, is confirmed
by the4 per cent year-to-year decline in thevolume ofretail sales inJuly and August.
Following the strong rise in 1978, gross fixed investment was again buoyant in
1979 when it amounted to over 32 per cent ofGDP, the highest ratio recorded. In¬
dustrial investment was a major factor in the investment boom7, but residential con¬
struction and agricultural investment also contributed. The strongest component was
again plant and equipment, increasing by 19 per cent, though a bunching ofdeliveries
of ships and aircraft accounted for about 3 percentage points. Building construction
grew by some 12 Viper cent. Underpinning this increasewas a high level ofmortgage
lending, facilitated by the strength ofbuilding society inflows in the early part ofthe
4 The picture given by the tax ratios in Table2 is distorted to the extent that delays in revenue
collection, dueto thePostOfficedispute, shifted taxpaymentsfrom 1979 to 1980. Ifaccountistakenof
these deferred tax payments, fiscal drag may have been broadly similar in both years.
5 Since a portion ofthe recorded savings in 1979 may, in fact, have related to outstanding tax
liabilities(secpreviousfootnote),theunderlyingratiointhatyearwasbelow23 percent.Withreciprocal
consequences probable in 1980, the underlying ratio is likely to have declined moregradually than the
crude data suggest.
6 From 1975 to 1978 thepersonal savingratioaveraged over23percent, compared with alevel
of 16 Viper cent in the preceding fouryears.
7 The total capital expenditure involved in projects approved by the Industrial Development
Authority (IDA) in 1977/78 represented a value increase of about 110per cent on the level of the
previous twoyears.