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Quarterly Economic Observer First Edition 2018

Quarterly Economic Observer First Edition 2018

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Summary

This edition of the NERI’s Quarterly Economic Observer (QEO) outlines our latest expectations for the economic outlook in the Republic of Ireland and Northern Ireland (Section 1) and examines the need to move away from a multi-tier system of healthcare provision to one based on need and funded overwhelmingly from public sources, and estimates the potential costs involved (Section 2).

Economic Outlook for the Republic of Ireland

  • The short-term outlook for the Republic’s economy is very positive. We project that real GDP will grow by 5.1 per cent in 2018 and by 4.0 per cent in 2019
  • The labour market will perform very well over the next eighteen months with strong employment growth and increasing real wages as the labour market tightens with falling unemployment and rising job vacancies. The unemployment rate should average a little under 5 per cent in 2019.
  • Labour market conditions should continue to improve in the short-term with strong employment growth but with modest increases in real wages. The unemployment rate is projected to fall below 6% sometime in early 2018.

Macroeconomic performance & projection, Republic of Ireland

 

2017

2016

2017

2018

2019

 

Real Output

 

Percentage real change over previous year

 

Gross Domestic Product

€296.2bn

5.1

7.8

5.1

4.0

 

 

 

 

 

 

 

 

Personal Consumption

€99.7bn

3.3

1.9

2.7

2.5

 

Government Consumption

€29.5bn

5.3

1.8

2.3

2.4

 

Investment

€69.4bn

61.2

-22.3

10.1

8.6

 

Exports

€355.4bn

4.6

6.9

6.5

5.2

 

Imports

€260.3bn

16.4

-6.2

7.1

6.5

 

 

 

 

 

 

 

 

Earnings

 

Percentage nominal change over previous year

 

Average Hourly Earnings

€22.43

0.6

0.6

2.8

3.1

 

 

 

 

 

Government Finances

 

Percentage of GDP

 

General Government Balance

-€1.0bn

-0.5

-0.3

-0.2

-0.1

 

Gross Debt

€201.3bn

72.8

68.0

66.6

64.9

 

 

 

 

 

 

 

 

Labour Force

 

Percentage change over previous year

 

Employment

2,194,425

3.7

2.9

2.6

2.1

 

 

 

Percentage of labour force

 

 

Economic outlook for Northern Ireland

  • The persistence of uncertainty surrounding Brexit, the absence of devolved government and the continuing contraction in government expenditure all weigh heavily on the outlook for the Northern Ireland economy in the short term.
  • The downward trajectory of output in the Manufacturing sector remains the one of the most concerning trends. Significant plant closures in recent months have compounded substantial job losses over the last three years.
  • Headline figures for unemployment may give the appearance of a strengthening labour market, but systemic weaknesses in economic inactivity and low pay show little sign of improvement.

Health Equality in Irish Healthcare – A New Deal?

  • The Republic of Ireland has made significant strides forward in healthcare outcomes along with most other Western economies. However, not all of this progress has been experienced equally by all sections of the population.
  • In particular, there are significant and persistent disparities in healthcare outcomes based on socio-economic status. There are similar disparities between different groups in terms of barriers and degree of access to healthcare.
  • Whilst the determinants of healthcare outcomes are many and diffuse, we propose that there is a link between the inequality of outcomes, inequality in access to health care and inequality in the provision of healthcare. Treating healthcare as a merit good and moving toward a publicly funded, single healthcare system, as SláinteCare proposes is the only way to break this link.
  • We estimate that total current health expenditure, incorporating both public and private funding sources, rises significantly in nominal terms out to 2030, nearly doubling over the period from an estimate of €20.8 billion in 2016 to a projected figure of €40.6 billion in 2030 under the central cost driver assumptions.
  • With a transition to a single-tier healthcare system, current public spending grows faster than aggregate expenditure, at an annual rate of between 6 and 7 per cent over the course of the transition period. These increases in public expenditure are associated with declines in total private expenditure from their peak in 2019.
  • Assuming a transition to 85 per cent public current funding by 2030, we estimate three scenarios for economic growth and find that there is likely to be a need for some additional discretionary revenues at some point over the course of the transition process from 2019 to 2030.
  • Allowing for ‘standstill costs’ as well as transition under Sláintecare proposals, the amount of ‘fiscal space’ left varies according to which economic scenario is assumed. Even under ‘benign’ conditions, total fiscal space left over only amounts to less than 2 per cent of total annual public spending in 2022 – the year when fiscal space is at its largest. This in the context of existing under-spends in other areas of public spending.
  • It will be difficult to accommodate the necessary growth in health spending through buoyancy arising from economic growth alone. Additional revenue measures will need to be considered carefully in line with general proposals to reform income tax and social insurance.

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