Executive Summary

This document is the second annual update of Ireland’s Stability Programme, first published in December 1998, and sets out the Government’s economic and budgetary objectives for the period 2001-2003.

Economic Review and Outlook

This updated Stability Programme is framed against a prospect of strong but moderating economic growth, underpinned by a supportive international economic environment.  The prospective moderation in Ireland’s economic growth reflects the emergence of supply-side, particularly labour, constraints.  

GDP is forecast to increase at an annual average rate of 6.9% over the three years 2001-2003 compared with growth of 10.7% in 2000.  GNP growth, a more accurate reflection of national income in Ireland, is anticipated to average 6% over the period 2001-2003. These growth projections are predicated on moderation within social partnership, inter alia in response to the supportive provisions of Budget 2001.  Pursuit of excessive expectations would inevitably damage economic and employment growth, push up unemployment and undermine our capacity for further social progress. This is why reaffirmation of the latest national agreement with the social partners, the Programme for Prosperity and Fairness (PPF) is so important.

Employment is expected to continue expanding - by about 2.5% on average over the next three years - reflecting Ireland's relatively strong, if moderating, labour force growth and a further, albeit limited, decline in unemployment.

While headline inflation will fall substantially through the year ahead and beyond - in particular as the impacts of this year's oil price and exchange rate developments unwind - inflation remains an important focus of policy attention.

Budgetary Policy Framework

The primary macroeconomic objective of Budget 2001 and the updated Stability Programme is the continuation of sustainable economic growth, supported by moderate inflation and competitive wage developments reflecting the Programme for Prosperity and Fairness.

To this end, the aim of Budget 2001 has been to strike a sensible balance between the implications for inflation and growth of, on the one hand, failing to underpin adherence to the terms of the PPF or to respond adequately to emerging infrastructural bottlenecks and, on the other, of adding unduly to the demand pressures in the economy.

In this context, a General Government Surplus is projected each year over the period 2001-2003, averaging 4.2% of GDP.  The projected surpluses comfortably meet the medium term objective of the Stability and Growth Pact of keeping budgetary positions close to balance or in surplus in normal economic conditions.  General Government Debt as a percentage of GDP is projected to continue to fall, reaching 24% by 2003.

The taxation and expenditure changes of Budget 2001, which are reflected in this Stability Programme Update, fully meet the first stage of the Government’s commitments under the PPF.

The Government’s budgetary and investment plans are designed to address the challenges facing the economy and society over the medium term. Critically, they further enhance work incentives, support increased labour force participation and tackle other supply side pressures, address key investment needs in the economy and, equally important, underpin the further realisation of social and other goals.