Summer Forecast 2014
All-Island economic recovery gathering momentum
The Economic Eye Summer 2014 Forecast, the 11th in the series, indicates that the All-Island economy continues to recover. Across the Island, unemployment is falling, consumer and business confidence is improving, house prices are on the rise, stock markets are on an upward trend, and inward investment is strengthening.
Indicators show that the Republic of Ireland (ROI) economy is recovering in the wake of its exit from the Troika bailout at the end of 2013, accompanied by a return to financial markets, a fall in long-term bond rates and an improvement in the country’s international credit ratings. Northern Ireland’s (NI) economy started to grow again in 2013, helped by a strong rebound in the wider UK economy.
The Economic Eye Summer 2014 Forecast predicts that 2014 will be an important turning point for the ROI, with both GDP and GNP registering robust positive growth. GDP growth is forecast to increase from -0.3% in 2013 to 2.0% in 2014, with GNP growth of 3.4% in 2013 and 3.3% in 2014. Strong GNP growth in 2013 is partly related to difficult to predict factors such as re-domiciled profits, which can inflate true underlying growth in the real economy.
The UK’s GDP outlook has been upgraded, and is now forecast to grow by 2.9% in 2014. In line with the wider UK upgrade, NI’s Gross Valued Added1 (GVA) growth is forecast to reach 2.4% in 2014, up a full percentage point from 2013.
The Economic Eye forecasts All-Island economic growth, based on ROI GNP and NI GVA, of 3.1% in 2014. This suggests that All-Island economic growth this year will outstrip that of the UK as a whole, the US and Germany. However, this strong rebound must be considered against the backdrop of the much more pronounced and sustained recession experienced across the Island.
Broadening recovery reassures
The long-sought economic recovery is becoming more broad-based, including a recovery in the domestic economy. Domestic demand in the ROI is forecast to contribute positively to economic growth in 2014 for the first time since before the recession started. The ROI consumer spending is forecast to finally grow in 2014 by 1.7%, although this trails the UK consumer spending recovery which began three years ago.
The employment recovery on the Island is taking place across a broad range of sectors. New jobs created have come from manufacturing, accommodation and food services (hospitality), information and communications services, professional and administrative support services, health and social care.
Exports sensitive to global factors, but remain the key to long-term prosperity
The ROI export growth is forecast to pick up in 2014, following two relatively sluggish years. The strength of the UK and US economies in 2014, combined with an improvement in both Eurozone and the ROI competitiveness, are the main reasons for our export optimism for the ROI in 2014. The ROI export growth, in real terms, was 1.6% in 2012 and 0.1% in 2013, and is forecast to rise to 3.7% in 2014.
NI external sales – which include exports outside of Great Britain (GB) and sales to GB – have risen, but not spectacularly. The main external sales growth sectors, in absolute terms, have been agri-food, machinery and equipment, electrical equipment, tourism, and computer services.
In the long-term, NI’s export strategy should focus on maintaining and building on the strength of its large agri-food export sector, while at the same time growing exports from a wider mix of high value-added and labour-intensive merchandise and service sectors. This would result in a much larger and diverse export base, more similar to the ROI’s today.
In order to build upon and sustain the recent economic recovery, expanding the Island’s export base will be of critical importance in both the ROI and NI. Given the rising risk profiles and growth forecast downgrades in emerging economies, traditional sources of export success should remain a high priority for exporting businesses, with a more cautious approach adopted towards emerging markets, at least in the medium term.
Road to recovery still fraught with risk
Despite the raft of positive economic news and upgrade to the near-term outlooks, continued recovery across the Island is by no means assured.
Key risks to the recovery
Republic of Ireland
- Continued difficulties within the banking sector and limited private sector lending to spur domestic economic recovery
- Psychological scarring of consumers from the long recession, which could hold back consumer recovery
- Potential pent-up repossessions in the housing market
- Deflation and its associated risks.
- Future increases in interest rates before Northern Ireland households and mortgage-holders are ready to absorb this shock
- Fragile consumer confidence among households who are still deep in debt; whose houses are in negative equity; and who have not seen any real wages increases in recent years
- A possible tougher second parliament of austerity.
ROI, NI, UK and All-Island economic growth recent performance and forecast×