Thursday, 10 November 2011

MTFS (I) - Things are getting worse, not better.

Michael Burke: The forecasts for both the deficit and for the debt level have worsened since April. The government’s Medium Term Fiscal Statement (MTFS) includes a series of forecasts. These show the projections for both the defict and for the debt level. This is despite the fact that the State has found €3.6bn, equivalent to 2.3% of GDP, from an accounting error at the NTMA.

First, here is the main forecast table in April’s Stability and Growth Pact Update (SPU).

Here is the similar section in Friday’s MTFS.

After 2013 all the debt levels are higher. In every year except next year the forecast deficit levels are higher. Importantly, the deficit is now expected to be 10.3% this year, when it was expected to be 10% in April.

The trend is for things to continue to get worse. Less than a year ago, the forecasts were much rosier. The table below is taken from the Information Note on the Economic and Budgetary Outlook 2011-2014 issued by the DoF November 2010.

These forecasts only stretch to 2014. The central forecast for the deficit for 2014 was then 2.8%. In the recent MTFS it is now 5%. A year ago the debt level for 2014 was projected to be 85.5% of GDP. Now it is projected to be 117% of GDP. The very worst debt level was forecast to be 106% of GDP in 2012. In Friday’s MTFS this is now the starting-point for this year’s debt- and the profile is to for increases over three years.

So, after all the misery the forecasts for the deficit are getting worse. And what was the worst-case scenario for the debt is now the starting-point from which the debt is still expected to deteriorate. Even in its own terms, ‘austerity’ isn’t working.

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