EY Economic Eye Winter 2014

Economic Eye

Winter Forecast 2014

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  • The 12th EY Economic Eye Forecast has upgraded the 2014 / 2015 outlook for the Island economy, with revised economic growth of 3.4% and 2.5% respectively.
  • The upgrade caps a remarkable turnaround in fortunes compared to early 2012 and before. The Economic Eye predicted this, but the strength of the rebound has surprised many.
  • The Island’s recent economic strength has been supported by the long sought after recovery in domestic demand and its drivers, adding to existing growth from exports, which recovered much sooner. Nine out of the 13 broad industries across the Island economy have registered net jobs growth, and seven out of ten private sector industries have higher output now compared to the start of 2012, putting the recovery on a more solid footing.
  • But there are still large differences between ROI and the UK’s recovery. Net trade accounted for three-quarters of ROI‘s economic growth between 2012 and 2014, while consumer spend and business investment accounted for almost 90% of the UK’s.
  • ROI’s economy is therefore more vulnerable to global risks, as would be expected for a smaller and more open economy, while the UK’s faces greater domestic risks to growth.
  • While the strong recovery is welcome, the Island economy does not get a perfect scorecard. It is still not fully back to normal, and not every household and local area is seeing the recovery.
  • The contrasting stages of ROI and NI on their fiscal journeys will have an important economic impact on confidence over the next five years. NI is staring at the most painful austerity phase to date, given UK government fiscal targets and how austerity will be phased. ROI’s 2015 Budget was the last of seven painful austerity budgets, with a first tax cut and spend increase budget for many years.
  • NI’s pain should at least be softened by a growing private sector – with many sectors not directly dependent on public spending – and the potential to learn from ROI’s austerity experience. Nonetheless, austerity measures over the next four years, and potentially longer, will be painful – given the economy’s dependence on the public sector – and will dominate media headlines and debate.