The Irish economy is small and highly open. The value of internationally traded goods and services in 2011 was equivalent to 188 per cent of GDP, which amounted to €159 billion for the year. Compared to 2000, this represents an increase in the importance of internationally traded goods of 3.5 percentage points (Figure 1 below).
Services are the largest component of Irish output: in 2011 they accounted for 72 per cent of gross value added at factor cost, while industry and agriculture represented 26 per cent and 3 per cent of gross value added, respectively (Figure 2 below). Pharmaceutical products, food, and computer and electronic products accounted for 37.3 per cent, 18.6 per cent and 9.9 per cent of total gross industrial output in 2010.
Ireland’s population has grown strongly over the past decade. In 2011 it was 4.6 million, up 17 per cent from 2002. With an average age of 36.1 years in 2011, the population is relatively young compared to the rest of the EU.
Figure 1: Size and Openness of the Irish Economy: 2000 – 2011
Figure 2: Gross Value Added at Factor Cost by Sector of Origin: 2011
Between 2000 and 2007, the annual average growth in real GDP and real GNP was 5.8 per cent and 5.2 per cent, respectively (Figure 3 below). During this time period property prices in Ireland soared by a compound annual growth rate of 11 per cent (Figure 4 below). However, with the onset of the global financial crisis, the Irish property sector collapsed, with prices of residential properties falling by 47 per cent from their peak in September 2007 to December 2011 (Figure 4 below). The resulting collapse of the construction and banking sectors meant that the Irish economy entered a very deep recession in 2008. Between 2008 and 2011 real GDP declined by 4.8 per cent, while real GNP declined by 9.5 per cent (Figure 3 below).
Figure 3: Annual Growth in Real GDP and Real GNP: 2000 – 2011
Figure 4: Residential Property Prices : 2000 – 2011
Data from January 2000 to December 2004 comes from the TSB/ESRI House Price Index. Data for subsequent periods comes from the index of all national residential properties produced by CSO. The two series were linked in January 2005.
Figure 5 (below) illustrates the impact of developments in economic activity on consumer prices and the unemployment rate. In the early part of the decade the Irish economy recorded relatively high inflation rates combined with a very low unemployment rate. Between 2000 and 2008, annual inflation in consumer prices, as measured by the CPI, meant that the average price level rose by 34.7 per cent. In 2009 as the recession deepened consumer prices fell sharply, so that by 2011 consumer prices were back at 2007 levels.
Between 2000 and 2007 the unemployment rate on ILO basis averaged 4.5 per cent per annum. With the onset of recession the level and rate of unemployment increased substantially. It was estimated at 14.4 per cent in 2011, and was higher for men than women. In addition, Figure 6 (below) shows that labour participation rates were also affected by the recession. While the overall participation rate increased by 8 per cent between 2000 and 2007, between 2008 and 2011, the overall participation rate fell back to 2004 levels. The fall in participation was higher for men than for women.
Figure 5: Annual Inflation and Unemployment Rates: 2000 – 2011
Figure 6: Annual Average Labour Participation Rate : 2000 – 2011
The participation rate is on ILO basis and is the proportion of population aged over 15 years that is in the labour force.
Figure 7 (below) illustrates the destructive consequences of the recession for Irish public finances. While government receipts exceeded expenditures prior to 2008, the situation reversed sharply in subsequent years. The deficit, as measured by the general government balance, widened from balance in 2007 to 7.3 per cent of GDP in 2008 and 14 per cent in 2009, before it increased to 31 per cent of GDP in 2010 due to substantial government support to Irish banks that was required to prevent the collapse in the Irish banking system. Excluding support to the banking system, the deficit was 11.5 per cent of GDP in 2009 and 10.9 per cent of GDP in 2010. In 2011 the deficit narrowed to 9 per cent of GDP..
Figure 7: General Government Balance: 2000 – 2011
Figure 8 (below) shows that until 2007 the levels of Irish public debt were low and declining. Ireland’s national debt fell from 34 per cent of GDP in 2000 to 20 per cent of GDP in 2007, and its general government debt fell from 38 per cent of GDP in 2000 to 25 per cent of GDP in 2007.
As a consequence of the very deep recession which began in 2008, combined with significant levels of public money injected into the Irish banking system in 2009, 2010 and 2011, the level of public debt soared. National debt increased from 20 per cent of GDP in 2007 to 75 per cent of GDP in 2011, and the general government debt increased from 25 per cent of GDP in 2007 to 106 per cent of GDP in 2011.
Figure 8: Government Debt: 2000 – 2011