First post-bailout IMF report warns of 'significant challenges'

The first post-bailout report on the Irish economy by the International Monetary Fund (IMF) has praised several key improvements but warned that “significant economic challenges” remain, particularly in relation to high unemployment, public debt and distressed loans.

A summary of its “post-programme surveillance” review found employment growth was 3.3 per cent year-on-year in the fourth quarter of 2013.

Consumer confidence and retail sales are increasing and the residential property market is showing signs of improvement outside of Dublin. "Core investment, including construction, surged in the second half of 2013. Confirming these trends, tax revenues are off to a solid start in the first quarter of 2014," the summary issued today stated.

Economic growth
"So, despite some volatility in recent GDP data, the mission expects economic growth of 1.7 per cent in 2014 and about 2.5 per cent in 2015."

As for financial market conditions, it acknowledged a resumption of regular bond auctions and new lows for borrowing costs as well as a market appetite for distressed Irish assets as evident in recent IBRC and Nama transactions.

There was a cautionary note, however, for a continuation of modest lending which it said could impede job creation. “Employment has risen 85,000 from its recent trough but remains 260,000 below peak. Sustained job-rich recovery is therefore the highest economic priority.”

As for the budget deficit, the report said that ensuring public debt, which was 124 per cent of GDP last year, remain on a downward curve “will require further declines in the fiscal deficit from its budgeted level of 4.8 per cent of GDP in 2014”. Further restructuring is required in health spending.

Reductions in mortgage arrears cases were a welcome development and it said the aim should be to resolve the majority of cases this year.