Winter Forecast 2013
Our Economic Eye finally reports ”green shoots” of recovery in the All-Island domestic economy.
Exports have done their best to prop up the economy and have made a sizable contribution to GDP, but much less to employment and household incomes. It was always going to take a turnaround in the domestic economy to put the Island recovery on a truly solid footing.
Four and a half years from our first Economic Eye in Spring 2009 – with the Republic of Ireland on the brink of becoming the first country to successfully exit its bailout programme and make a long awaited return to financial markets – the 10th Economic Eye finally reports domestic economic recovery, notably in the labour and housing markets.
As the Economic Eye has consistently highlighted, weak domestic demand has been the main drag on growth. Exports have done their best to prop up the economy, in terms of GDP, but their effect has been less successful in terms of employment.
- The latest Economic Eye examines the role of exports and FDI in the recovery, assessing how businesses and governments can balance the opportunities presented by existing, traditional markets and sectors versus new, fast growing emerging markets.
- An examination of risk monitoring assessment for business identifies the top risks facing the RoI and NI economies, and whether risk has increased or decreased since our summer 2013 report. This aims to help businesses assess, manage and mitigate risks.
How sustainable is the ‘green shoot’ of recovery?
The Republic of Ireland
Within the RoI, there are still significant short to medium-term risks.
Consumer spending will be constrained by high household debt, muted wage growth, continued emigration, and the risk of tougher personal bankruptcy legislation, combined with a rise in home repossessions.
Investment will continue to depend on recovery of the financial sector, while excess housing will limit construction’s recovery, and, until the global economy fully recovers, weaker growth in exports is expected in the near-term.
For NI, the greatest risks are probably further in the future. It’s biggest economic challenges remain dependence on public spending, over which Stormont has little control, compounded by the small size of its private sector and export base.
The UK and NI have yet to experience fiscal austerity to the same extent as the RoI over the past five years, notwithstanding high inflation, which has made cuts and freezes feel tougher.
Unlike the RoI, NI will not be able to export its way out of recession. With the exception of the agri-food sector – in which it has considerable export strength – NI lags far behind the RoI in terms of the size of its export base – from pharmaceuticals to IT, tourism to financial services – and its footprint in key export markets outside Great Britain.