Section 1 Macroeconomic Developments Section 2 Macroeconomic Outlook

Section 1 Macroeconomic Developments Section 2 Macroeconomic Outlook Section 3 Developments in the Public Finances

Economic Growth in Ireland’s trading partners is generally picking up… US PMI 1. 4 However, UK growth has slowed markedly in the first half of 2017 50 30 0. 4 4 | OUTLOOK 2018 20 0. 0 10 -0. 2 0. 6 40 0. 5 30 0. 4 0. 3 2014 Q 4 2015 Q 3 2016 Q 2 2017 Q 1 0 0. 2 0. 0 1. 2 60 1. 0 50 0. 8 40 0. 6 30 0. 4 20 0. 2 10 20 10 0. 1 2014 Q 1 PMI 50 0. 7 40 0. 6 60 0. 8 1. 0 0. 8 Euro Area GDP 70 0. 9 1. 2 -0. 4 PMI 1. 0 60 0. 2 • UK GDP q-o-q growth US growth rebounded in the second quarter while Euro area growth continues to be solid q-o-q growth • US GDP Euro area q-o-q growth Key Points UK 2014 Q 1 2014 Q 4 2015 Q 3 2016 Q 2 2017 Q 1 0 0. 0 2014 Q 1 2014 Q 4 2015 Q 3 2016 Q 2 2017 Q 1 0

Underlying exports remain very strong… Key Points • • Contract manufacturing continues to weigh on export growth However underlying exports i. e. excluding contract manufacturing, continue to perform very strongly Contribution to nominal export growth 15 Services Customs CM Total 10 5 0 -5 -10 5 | OUTLOOK 2018 2016 Q 1 2016 Q 2 2016 Q 3 2016 Q 4 2017 Q 1 2017 Q 2

Investment volatility driven by intangibles… Key Points Contributions to Investment, pp B&C • Investment very volatile reflecting inter alia intangibles investment Core M&E Aircraft Intangibles GDFCF 100 80 60 • However, underlying investment remains robust driven by building and construction 40 20 0 -20 2016 Q 1 6 | OUTLOOK 2018 2016 Q 2 2016 Q 3 2016 Q 4 2017 Q 1 2017 Q 2

Consumer Spending softening since 2016 but remains reasonably solid… Key Points • • 9 Retail sales are up 3. 3 per cent January – August y-o-y New private car licensing has been weak this year with consumers shifting towards used/imported cars which in part reflects the appreciation of the euro against sterling. This has acted as a drag on retail sales Core retail sales, which exclude car sales, are up 6. 6 per cent January – August yo-y 7 | OUTLOOK 2018 Retail sales Core retail 8 7 6 y-o-y change • Retail sales 5 4 3 2 1 0 2016 Q 1 2016 Q 2 2016 Q 3 2016 Q 4 2017 Q 1 2017 Q 2 July August

Continued momentum in the labour market… • • Employment levels have increased by 13 per cent since the low-point in 2012 (+ 230, 000 jobs) Growth remains broad based with all sectors posting employment gains relative to trough levels The number of unemployed continues to decline, falling to 133, 200 in September with the unemployment rate at 6. 1 per cent 13 3. 5 employment growth, y-oy (%) • 4. 0 12 3. 0 11 2. 5 10 2. 0 9 1. 5 8 1. 0 7 0. 5 0. 0 Q 1 Q 2 Q 3 2014 Q 1 Q 2 2015 Employment Growth (lhs) 8 | OUTLOOK 2018 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 2016 Unemployment Rate (rhs) Q 1 Q 2 2017 6 unemployment rate (%) Key Points

Euro-sterling exchange rate developments continue to weigh on consumer prices in Ireland… Key Points • • 2. 0 Annual inflation in Ireland on a HICP basis has averaged 0. 2 per cent over January – August Core inflation, which excludes energy and unprocessed food, averaged -0. 1 per cent over the same period Exchange rate developments primarily felt through Non. Energy Industrial Goods (NEIG) reflecting the importance of the UK as a source of imports for these products 9 | OUTLOOK 2018 1. 5 1. 0 Contrubution (%) • Core v Headline HICP Quarterly Profile 0. 5 0. 4 0. 0 -0. 1 -0. 2 -0. 3 0. 1 -0. 3 -0. 5 -1. 0 -1. 5 -2. 0 2016 Q 1 2016 Q 2 2016 Q 3 2016 Q 4 2017 Q 1 2017 Q 2 Unproc. Food Processed Food NEIG Energy Core Services Rents All HICP Core 2017 Q 3

Section 1 Macroeconomic Developments Section 2 Macroeconomic Outlook Section 3 Developments in the Public Finances

Budget 2018 Macroeconomic Outlook… 11 | OUTLOOK 2018

Section 1 Macroeconomic Developments Section 2 Macroeconomic Outlook Section 3 Developments in the Public Finances

Tax performance year to date… Key points § In year-on-year terms, tax revenues are up 5. 4% or € 1. 8 billion. 9, 000 8, 000 7, 000 6, 000 € millions § Tax revenues of € 35. 2 billion were received to end Q 3 2017. This is marginally below target (down 0. 6% of € 0. 2 billion). Tax Receipts vs Profile 5, 000 4, 000 3, 000 2, 000 1, 000 0 Jan Feb Mar Apr May Jun Total Taxes 2017 receipts 13 | OUTLOOK 2018 Jul Aug 2017 Profile Sep Oct Nov Dec

Budget 2018… § Budget Day Package of approximately € 1. 2 billion, net of € 180 million allocation to Public Services Stability Agreement, distributed on a 70 : 30 basis between expenditure and tax. § Total revenue reductions of € 335 million are offset by € 830 million of revenue-raising measures. This gives a net revenue package in Budget 2018 yielding € 495 million. § On the spending side, there will be an expenditure increase of the order of € 1. 1 billion. § Ireland is forecast to comply with both pillars of the preventive arm of the Stability and Growth Pact. The estimated improvement in our 2018 structural balance is 0. 6% of GDP, as required under the Stability and Growth Pact. 14 | OUTLOOK 2015

general government balance… Key points § A general government surplus is forecast from 2020. 2. 0% 0. 3% -0. 7% -2. 0% -0. 3% -0. 2% -0. 1% -1. 9% -4. 0% -3. 6% -6. 0% -6. 1% -8. 0% -10. 0% -12. 0% -14. 0% 15 | OUTLOOK 2015 0. 8% 0. 0% % of GDP § General government deficit of 0. 3% of GDP forecast for 2017, improving to 0. 2% of GDP in 2018. general government deficit -12. 7% 2011 2012 2013 2014 2015 2016 2017 f 2018 f 2019 f 2020 f 2021 f

general government debt… Key points general government debt 140. 0% § Debt ratio peaked in 2012 / 2013. § Decline in debt-to-GDP ratio expected to continue over the forecast horizon. 16 | OUTLOOK 2015 100. 0% % of GDP § Significant decline in 2015 debt ratio - primarily due to the large revision to 2015 GDP in the National Accounts. 120. 0% 80. 0% 60. 0% 40. 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 f 2018 f 2019 f 2020 f 2021 f

structural deficit improvement… Key points 1. 5 1. 0 § Average annual structural improvement of 0. 6 per annum over 2017 -18 0. 5 0. 0 -0. 5 § Achieve a balanced budget in structural terms (i. e. reaching MTO of -0. 5% of GDP) by 2018. -1. 0 -1. 5 -2. 0 -2. 5 GGB (as % of GDP) 17 | OUTLOOK 2015 Structural Balance (as % of GDP) 21 20 20 20 19 20 18 20 17 20 16 20 20 15 -3. 0

Getting Ireland Brexit Ready § By ‘balancing the books’ in 2018 the public finances will be better placed to withstand Brexitrelated fiscal shocks. Establishment of a ‘rainy day fund’ provides a further counter-cyclical buffer § Doubling of capital investment between 2015 to 2021 from € 3. 7 to € 7. 8 billion - boosting the growth potential of the economy § Retention of the 9% VAT rate in the hospitality sector will reduce the impact of currency volatility in the wake of the UK’s decision § Improve the competitiveness of our personal tax system through income tax reform § Key Employment Engagement Programme – new incentive to attract key employees § € 300 m Loan Guarantee Scheme for Brexit-impacted businesses – supported by the EIB Group, the European Commission and the SBCI. Q 1 2018 launch. § Development of a new complementary € 25 m Agriculture Brexit Loan Scheme(s) for: a combination of primary producers and food businesses. 18 | OUTLOOK 2015

Budget 2018 Fiscal Outlook… 2016 2017 2018 2019 2020 2021 General government balance (% of GDP) -0. 7 -0. 3 -0. 2 -0. 1 0. 3 0. 8 General government primary balance (% of GDP) 1. 6 1. 7 1. 9 2. 3 Debt-to-GDP ratio 72. 8 70. 1 69. 0 67. 1 63. 5 61. 2 Debt-to-GNI* ratio 106. 0 106. 5 104. 7 101. 8 96. 4 93. 1 -1. 7 -1. 1 -0. 5 0. 2 0. 5 0. 9 Structural Budget Balance (% of GDP) 19 | OUTLOOK 2015

Department of Finance Government Buildings Upper Merrion Street Dublin 2 Ireland www. finance. gov. ie @IRLDept. Finance This presentation is for informational purposes only. No person should place reliance on the accuracy of the data and should not act solely on the basis of the presentation itself. The Department of Finance does not guarantee the accuracy or completeness of information which is contained in this document and which is stated to have been obtained from or is based upon trade and statistical services or other third party sources. Any data on past performance contained herein is no indication as to future performance. No representation is made as to the reasonableness of the assumptions made within or the accuracy or completeness of any modelling, scenario analysis or back-testing. All opinions and estimates are given as of the date hereof and are subject to change. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.