Mr. John McCarthy:

I will wrap up with a couple of slides, if that is okay with the Chairman. This is essentially what we will present to the Irish Fiscal Advisory Council, IFAC, this afternoon. I will concentrate on the position in 2016 and 2017 because that is probably what the committee is most interested in. I will give it the headline picture.

Members can see that in 2016 we are projecting GDP growth of 4.2% - that is a real figure; in other words, it takes account of price developments - with a very modest deceleration to 3.5% next year. At the time of the stability programme and the SES, the figure was closer to 4%; therefore, as I mentioned at the start, we have taken off about half a percentage point, mainly because of lower investment, uncertainty and so forth associated with Brexit.

Consumption is an important indicator to consider, given the distortions in the GDP number. We are still looking at fairly robust consumer spending, an increase of about 3.2% for the year and 2.8% next year. As Mr. Papa mentioned, we are not really seeing any inflation in the system. It is essentially flat this year, but there will be a modest pick-up to about 1.25% next year.

We see employment growth of 2.6% this year and 2.1% next year. The unemployment rate, as all members will be aware, peaked at 15.1%, I think in 2012; it has, therefore, fallen fairly dramatically. What we have seen over the course of the year is that it has continued to fall but not at the same pace as before. The reason for this, as Ms Weymes mentioned, is there is a labour supply response. There is returning migration and participation rates are going up. We still expect unemployment to fall but perhaps not at the same pace as before. It will be about 8.3% on average this year and about 7.8% next year.

In the budget documentation and our discussions with the IFAC we typically highlight the risks. As I said earlier, these are contingent forecasts. They are contingent on continued growth in external markets and so forth. It is fair to say the risks are tilted towards the downside and mainly external in origin. Obviously, with Brexit, we have seen fairly substantial appreciation of the euro against sterling. This time last year €1 bought 73p sterling. I think yesterday it bought 87p; therefore, there has been substantial depreciation of sterling or appreciation of the euro.

There is also the possibility that if the UK economy goes into recession, it will have an impact in terms of lower trade levels and so forth. However, as I mentioned, it is not just about Brexit. There appears to be an underlying structural weakness in advanced economies. We have seen very weak productivity growth. We are all aware of the ageing of the population in the euro area and the United States. Then there is the possibility of sectoral stagnation, by which we have seen a number of years of disappointing growth figures which is affecting growth expectations globally. Of course, if one expects growth levels to be weaker, firms will invest less and so forth; therefore, it almost becomes, as some suggest, a negative feedback loop. There is also the perennial risk posed by geopolitical factors.

On the domestic front, there is always the possibility of further de-leveraging, that is, households, firms and so forth trying to repair their balance sheet at a more rapid pace than we have assumed. Then there is the possibility of a further loss in competitiveness, either via the exchange rate or because wages in Ireland move out of sync with productivity or inflation picks up much more rapidly than elsewhere. I will not go through this, but we have tried to construct a fan chart of our central scenario just to show how uncertain the situation is. We will publish this on budget day, but in an Irish context in which there are 189,000 enterprises, five of those account for one third of our exports, so we are very much into firm-specific developments. If firm-specific issues happen, that can throw a forecast off track.

We have a lot of material about the supply side. It is of a technical nature, and I do not think it is really relevant to the committee's work. It is something on which our colleagues in the Fiscal Advisory Council probe us quite deeply. We are happy to go through it here, but this gives you a flavour of how we see the short-term situation evolving.