Róisín Shortall (Dublin North West, Social Democrats)
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81. To ask the Minister for Finance his Department's estimates of Irish GDP, GNP and GNI for 2017 and 2018, assuming average euro-sterling exchange rates (details supplied). [31254/16]

Michael McGrath (Cork South Central, Fianna Fail)
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90. To ask the Minister for Finance the basis of his Department's estimate, as contained in the economic and fiscal outlook accompanying budget 2017, that the euro-sterling exchange rate will be at €1:£0.85 for the 2017 to 2021 period; if he will confirm, for example, the impact on projections for exports, economic growth and employment levels if the exchange rate averaged €1:£0.90 for the period and if it averaged €1:£0.95; and if he will make a statement on the matter. [31351/16]

Pearse Doherty (Donegal, Sinn Fein)
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103. To ask the Minister for Finance the impact on growth projections and fiscal space projections if his Department's current technical assumption for the euro-sterling exchange rate of €0.81 for 2016 and €0.85 for each of the years 2017 to 2021 is revised in view of the fact that the rate of exchange is currently above €0.90 and it appears that this current exchange rate is a structural change for the coming years as opposed to a cyclical fluctuation; and if he will make a statement on the matter. [31432/16]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 81, 90 and 103 together.

The updated macroeconomic and fiscal forecasts underlying Budget 2017 are contingent forecasts i.e. they are based on assumptions for key inputs such as growth in our main trading partners, the evolution of exchange rates and oil prices.

The external assumptions underlying the Budget 2017 macroeconomic forecasts include an assumption of unchanged exchange rates as of mid-September 2016.  As a result, the euro-sterling exchange rate is assumed to be unchanged at €0.85 from 2017 onwards.  Such an assumption is a normal feature of all macroeconomic forecasts both in Ireland and internationally. Professor John McHale, Chair of the Irish Fiscal Advisory Council (IFAC), has noted that this is the appropriate approach. The Department's Budget 2017 forecasts have been endorsed by IFAC.

In the Fiscal and Economic Outlook published with the Budget the Department of Finance has highlighted currency developments as a particular risk noting that  "the euro-sterling rate has appreciated significantly over the past year, and further appreciation remains a distinct possibility with adverse implications for Irish exports to the UK (especially for the more 'traditional' sectors)." (Budget 2017 Fiscal and Economic Outlook, Table 19, Page C.40).

Currency movements are volatile and hard to predict and that is the reason for the standard assumption about unchanged rates as of a particular cut-off date.  This is also recognised in a note to Table 2, External Assumptions, page C.11 of the Fiscal and Economic Outlook, which acknowledges that the euro-sterling bilateral rate has appreciated since the mid-September cut-off date.  The cut-off date used by the Department of Finance to fix its external assumptions, including exchange rate assumptions, is determined by the requirement to provide these assumptions to the IFAC as part of the endorsement process.

A sustained appreciation of the euro against sterling, compared to the standard assumption in the Budget 2017 forecasts, would, all else equal, result in a deterioration in Ireland's competitiveness, with a consequent reduction in Irish exports and growth rates. In this context, the Risk and Sensitivity Analysis chapter in Ireland's Stability Programme April 2016 Update (SPU) included an illustrative assessment of the impact of a 5 percentage point (pp) depreciation of sterling (SPU page 27). The analysis suggested that such a shock would decrease Irish GDP growth by approximately 0.6 pp and 0.2 pp relative to baseline in the first and second years following such an event, i.e. 2017 and 2018, respectively. Employment and export growth would also be negatively impacted.

The Department of Finance will produce a revised set of macroeconomic and fiscal forecasts, including projections of fiscal space, next April as part of the Stability Programme Update. These forecasts will incorporate information available at that time including exchange rate developments.