Global concerns threaten to derail the recovery– says latest Ernst & Young all-island economic forecast
- ROI economic forecast upgraded for 2011 however downgraded in 2012
- Ireland has greatest export to GDP rate in developed world at 100%
- Peak employment not set to return until 2030 in ROI
- NI forecast downgraded with public sector and manufacturing set to lose jobs
The Ernst & Young Economic Eye has today announced it has upgraded its latest economic growth forecast for the Republic of Ireland (ROI), predicting positive economic growth in Gross Domestic Product (GDP) of 1.2% this year – the first annual increase since 2007. However the forecast for GDP growth in 2012 has been downgraded to just 0.5%.
ROI saw Q1 and Q2 quarterly GDP growth rates of 1.9% and 1.6% in 2011, the first consecutive quarters of positive GDP growth since 2006. However, the domestic economy is still contracting, the Gross National Product (GNP) growth forecast for 2011 is weaker and the forecast warns that the surprisingly strong performance in the first half of the year does not signal that continued strong growth can be expected for the second half of 2011. Indeed, the Economic Eye forecasts that this exceptional first half performance is likely to be followed almost immediately by a fall back to recession in ROI in the second half of 2011.
Neil Gibson Economic Advisor to Ernst & Young comments “The Republic of Ireland’s economy is forecast to grow in 2011 on an annual basis. This has provided much needed welcome cheer – to the Government, investors, the IMF and EU - in an otherwise still very troubling economic environment. However, the domestic economy and employment continue to decline and our latest forecast has also downgraded growth prospects in key export markets. Given the extent to which the Republic of Ireland currently relies on rising global exports to drive economic growth, this is bound to impact overall economic performance in 2012”.
Economic Eye confirms that its forecast for ROI economic growth in 2012 has today been revised down from 1.1% in its summer forecast issued in May, to just 0.5% as the impact of Eurozone dent crisis takes hold, slowing down demand for global exports, and domestic demand is still forecast to decline next year.
However, despite a shaky return to economic growth, and a relatively weak performance of the economy in 2012, ROI is expected to perform stronger in 2013, with GDP growth then picking up to an average of 4.1% per annum over the period to 2020 as the economy’s core strengths come to the fore.
The Economic Eye forecasts for the NI economy have been revised downwards for 2011 and 2012 to 0.8% and 1.1% respectively. The publication of the long awaited Programme for Government (PFG) and the accompanying Economic and Investment Strategies are to be welcomed, but the Economic Eye forecasts clearly set out the scale of the challenge ahead. The PFG has a target to promote 25,000 extra jobs by 2015, The Economic Eye – winter 2011 forecasts suggest it will be 2021 before the economy expands by this amount in net employment terms.
Commenting on the new strategies Neil Gibson said “The PFG is an ambitious policy document which strikes the right tone of local responsibility for growth whilst recognising the necessity to expand the region’s export base. The Economic Eye forecast suggests that meeting the targets set out will be very challenging indeed, particularly those relating to job creation. The legislation and policy changes which follow will be the true test of whether the economy can meet the laudable ambition set out across the three strategic documents”
Exports remain key however global risks could apply the brakes to demand
The forecast confirms that ROI has the highest export to GDP ratio amongst any advanced economy in 2011, equivalent to 100% of GDP – ahead of countries such as Netherlands (80%), Germany (50%), China (32%), Britain (30%), India (26%) and well ahead of other ‘peripheral’ states including Portugal (34%), Italy (27%), Greece (23%) and Spain (32%).
Gibson comments “The Republic of Ireland’s trade with global markets has been its saving grace – without it, the economic decline would have led to a sustained economic depression with declines of over 10% per annum. Indeed, it is the size, scale and diversity of the Republic’s export market that will continue to distinguish the country from the likes of Portugal, Greece and Spain.”
However, today’s forecast confirms that it is also as a result of its exceptionally strong export base that will see a downgrade in ROI’s 2012 growth forecast as growth prospects weaken in key export markets.
The forecast anticipates the rates of economic growth across key ROI export markets to decline in 2012 including the UK (-0.8%), India (-1.2%), Japan (-0.6%), China (-0.3%) and the US (-0.8%) and across the Eurozone. A specific area of concern for ROI is its exposure to the Eurozone market and the current crisis - with six of ROI’s top 10 export markets in the Eurozone region.
Gibson comments “While this is a genuine reason to be concerned about short-term export outlooks, the sectoral mix of ROI’s exports, with large medical and pharmaceutical and computer services sectors, suggests some level insulation as demand for these sectors is likely to remain relatively robust and offers long-term growth potential”.
NI , being less exposed to global changes in export demands given its limited export orientation; is by this same virtue, unlikely to experience equivalent levels of economic bounce-back which will be experienced by ROI as global economies begin to grow and demand for ROI’s diverse range of exports begin to recover.
The forecast confirm that according to the latest data available, NI’s ratio of exports as a percentage of GDP was just 17%, half the wider UK average export figure of 30% - and in comparison to ROI’s 100% ratio.
Gibson comments “Northern Ireland’s reliance on the British market for manufacturing sales and services including tourism, is likely to impede its growth prospects as the overall UK economy struggles to recover. This weaker growth and more pronounced fiscal austerity, will act as a brake to overall Northern Ireland export performance. Any fall in demand from the Eurozone – within which six of Northern Ireland’s top 10 largest export markets sit – will also likely impact Northern Ireland’s export performance.”
Employment
Pre-recession employment levels will not be reached until 2030 and 2020 in ROI and NI respectively, a full 10-20 years for ‘recovery’. ROI’s unemployment rate will continue to rise to 14.6% in 2012, the highest annual average unemployment rate since 1993. Unemployment levels will begin to fall from 2013 (14%). However, Economic Eye confirms that job opportunities created in the next decade will not all necessarily align to the skills of those currently out of work, leaving an employability challenge that is likely to last a generation.
Gibson comments “In construction alone for example, approximately 160,000 jobs have been lost in the Republic since the recession began in 2008 and only 22,000 new construction industry jobs are forecast to be created between now and 2020”.
Linked to NI’s weaker medium and long-term economic growth outlook, its unemployment rate is forecast to continue rising in 2012 (7.8%) and 2013 (8.3%), as public sector cuts bite and the boost from a recovering global economy is limited, and rates only fall back moderately thereafter. Welfare reform could also move some of the current economically inactive persons into formal unemployment. By 2020, NI’s unemployment rate is forecast to still be as high as 7.1%, which is higher than at anytime between 2000 and 2009.
Economic Eye forecasts the importance of professional services to the Island’s future jobs outlook. It is expected to account for half of all 161,000 job forecast for creation in the period to 2020.
In ROI key areas of employment will include business and financial services (64,000), Construction (22,000), Hotels and catering (21,000) and Distribution and retail (21,000).
In NI, the manufacturing sector is forecast to lose a further 9,000 net jobs over the next decade – as the sector continues to outsource jobs to other sectors and due to its less favourable sector structure compared to the sector in ROI as. The reduction in the size of Northern Ireland’s public sector will continue to see increasingly small numbers of additional public sectors jobs created until at least 2020, with some 5,000 fewer public sector roles expected to exist by the end of this period. Most of NI’s employment creation will come from services, particularly business services where 18,000 additional roles are forecast over the next 10 years.
Economic Eye confirms that the recession has also been characterised as having had the greatest impact on the young. This is evident in the unemployment data both North and South. In the 15-19 age category, the unemployment rate is as high as 40% in ROI and over 30% in NI. In the 20-24 age category, the unemployment rate is still as high as 28% in ROI and 21% in NI. The difficulties facing young persons in the labour market is one of the main legacy impacts of the recession. As the Economic Eye forecasts, where jobs will come from will be the greatest challenge facing the Island economy.
