Business Planning in 2009

The Macroeconomic Environment

Seamus Coffey, Dept of Economics, UCC

Are we all out of luck?

Then and Now

Unemployment Rate (March): 1984: 15.2%2009: 11.0%

Inflation (March Annual Rate): 1984: 10.1%2009: – 2.6%

Interest Rate: 1984: 12.00% (Central Bank Rediscount Rate)2009: 1.25% (ECB Main Refinancing Rate)

Exchequer Balance (%GDP):1984: 10.50%2009: 10.75%

The Unemployment Rate

Inflation-5

05

10

15

20

25

inflat

1980 1990 2000 2010date

Monthly Annual Inflation Rate

Per Capita GDP0

10000

20000

30000

40000

GD

P P

er

Capita in 2

000 N

CU

s

1970 1980 1990 2000 2010Year

Real GDP Per Capita

Government Balance

The Public Finances

The God That Failed

2007 2008 2009 E

Value Added Tax

Income Tax

Excise

Stamps

Corporation Tax

Capital Gains Tax

Customs

Training & Employment Levy

Unallocated

14,496,588

13,572,410

5,837,878

3,185,602

6,390,625

3,105,495

265,904

2,501

0

13,429,602

13,176,857

5,443,338

1,650,792

5,065,894

1,430,080

248,001

1,032

0

11,420,000

12,475,000

4,634,000

980,000

3,740,000

625,000

230,000

1,000

0

Total 47,249,352 40,777,196 34,400,000

Tax Revenue (€000s)

Tax Revenue has dropped 30% in just two years.

Expenditure (€000s)

Vote or Group of Votes 2007 2008 2009E

Health & Children 12,448,835 13,745,317 13,426,037

Social & Family Affairs 8,180,934 9,399,098 10,915,679

Education & Science 8,443,974 9,031,516 8,900,030

Other 15,534,992 17,136,863 14,162,658

Total 44,608,735 49,312,794 47,404,404

Even with the announced expenditure “cuts” we are still spending more than we did two years ago.

Further labour market deterioration is likely to increase social welfare spending (and reduce tax revenue)

Closing the Gap

More Taxes Less Spending

Or just hope for the best!

Market Response – Worry!

Household Response – Save!

010

000

2000

030

000

4000

0sa

ving

s

2006:Jul 2007:Jan 2007:Jul 2008:Jan 2008:Jul 2009:Jandate

Household Savings in Accounts of 2 Years or less

International Government Responses – Spend!

Millions, Billions and Trillions

The recent G20 meeting in London formalised a collective “stimulus” package of $5.5 trillion from members.

The “bailout” of financial markets could run to $3.5 trillion.

• Where will this money come from?• What will it do?• Where will it go?

“A billion here and a billion there and pretty soon you’re talking about real money!”

Everett Dirkson, US Senator

Me and a Million!

Me and a Trillion!