Mr. John McCarthy:

I will skip the next slides as they are too detailed. They are to do with modelling export prices and so on.

The overall story is one of a modest, gradual recovery taking hold in the short term, with broadly similar contributions from domestic demand and from net exports. The positive thing we can take from it is that there is very strong evidence of stabilisation of domestic demand and a modest recovery under way in both consumption and investment. The improvements in external demand should support some improvement in export growth next year, but there are some sector-specific issues that are likely to have an impact as well.

We mentioned earlier that a recovery is under way internationally, but that recovery is fragile and subject to downside risk. I believe it is the same in Ireland. As a very small and very open economy - our exports are in excess of 100% of GDP - we are very reliant on what goes on in three regions, so if there were any sort of re-intensification of the eurozone crisis, or if the overall policy mix in the US were to become more problematic, then we could see downward revisions to growth in our major trading partners. Domestically, there is the risk of an intensification of the pharmaceutical patent cliff issue. There is also the issue of household debt restraining consumption growth for the foreseeable future. There could be a flip in the savings rate. Our baseline assumption is that the savings rate comes back gradually, but that is very sensitive to what goes on in the labour market and what goes on internationally. If that were to turn, we could see an increase in the savings rate, with negative implications for consumption and overall GDP. On the upside, there is always the possibility of stronger growth in the UK, the US and in the eurozone, but that is certainly not built into our baseline assumptions.

The next chart shows what the risks mean. We asked our colleagues in the ESRI to use their macroeconomic model, known as HERMES, to simulate a number of scenarios, such as what would happen to growth in Ireland if world growth was weaker. It is typically one for one, so if world growth was 1% weaker that would translate into a 1% reduction in GDP in Ireland. Let us suppose the household savings rate were to increase or even fall - it is broadly symmetrical. A fall would translate to 0.25% growth, or vice versa. The high level of indebtedness in the economy means that we are very exposed to interest rate changes - both market rates and policy rates - so the impact on GDP of any changes there would be fairly stark. We have included those as scenarios. They are not our baseline assumption, but they illustrate some of the risks and try to quantify what would happen if any of these risks were to materialise.

I thank committee members for their attention. I apologise for going through some technical issues quite quickly, but we are happy to answer any questions as best we can and to provide further information if we cannot answer any questions.