- ROI GDP growth slightly revised upwards to 4.1% in 2019, due to positive Q1 data
- Growth will moderate to 3.3% and 3.2% in 2020 and 2021 respectively, assuming an orderly Brexit
- Job creation will slow from 2020 as labour shortages start to bite
- Inflation is expected to pick up as rising wages feed back into prices and lead to higher business costs
Ireland’s growth forecast for 2019 has been marginally revised upwards from 3.9% to 4.1% based on corporate tax receipts and Q1 data which saw 81,200 net new jobs (+3.7%) in the year to Q1 2019, exceeding expectations. The latest EY Economic Eye forecast published today, which outlines the latest projections for the all-island economy, also finds that whilst Ireland continues to grow at an impressive rate, the price of success is rising costs and increasing talent shortages which are set to continue.
The report states that an impressive labour market performance across the island is fuelling growth in consumer spending and the domestic economy, however firms are struggling to secure the talent they need at an affordable price and will soon have to face even higher costs as a result of rising inflation. With salary levels already rising above the rate of inflation across the island, this should feed through into prices, though any fall in Sterling as Brexit approaches may temper this by holding import costs down. Inflation is forecast to average 1.7% in 2019, closer to the UK rate of 1.9%.
Professor Neil Gibson, Chief Economist for EY Ireland commented: “Rising salary costs and accelerating inflation are in many ways the price of success and a welcome endorsement of economic performance. However, this does create a cost pressure for firms and this is accelerating the exploration of innovative digital or technological solutions to reduce overheads. We expect a moderation in the rate of job growth across the island, given the limited labour supply, but migration into the Republic of Ireland will help support over 210,000 net jobs over the next five years.”
While the growth rate in job creation is expected to moderate from 2.8% in 2019 to 1.8% and 1.6% in 2020 and 2021 respectively, this is still a very impressive pace and the variation across a broad range of sectors gives encouragement that employment will occur throughout the country. In the year to Q1 2019, employment in 12 of the 14 main sectors grew, placing Ireland in a balanced position to withstand any future headwinds. The sectors set to experience the most significant employment growth between 2018-2023 are forecast to be Construction (40,000), followed by Accommodation and Food (25,400), Administration Services (20,800) and ICT (20,800).
Economists concerned while business leaders decidedly cheerier
EY Economic Eye for the first time includes data from the firm’s Global Capital Confidence Barometer which assesses corporate confidence in the economic outlook based on insights from more than 2,900 executives in 47 countries. This analysis finds that 93% of business leaders view the global outlook as improving – highlighting a striking divergence with economists who are generally more cautious and concerned about headwinds.
Neil says, “Across the world, economic forecasts are being revised downwards due to the risks associated with global trade wars, Brexit and the disruption of key sectors such as the automotive industry. This concern is in contrast to business leaders who are generally more optimistic. The fact that economists and business leaders view the outlook differently is not surprising, and it reflects the strong demand in the economy at present with the impact of trade wars and the UK’s departure from the EU yet to be fully felt. Encouragingly, with half a million more people employed across the island than there were six years ago, there is considerable strength in the domestic economy that will provide a level of insulation against any global slowdown.”
Ireland builds up Brexit resilience
Whilst businesses are still implementing a range of mitigation strategies, the palpable sense of fatigue with the lack of clarity around Brexit remains. However, in positive news, Ireland remains a highly attractive relocation destination for companies moving outside of the UK, as demonstrated by EY’s latest European Attractiveness Survey which showed an impressive 52% growth in foreign direct investment into Ireland in 2018, with inflows from the UK serving as a major contributor to this growth.
Michael Hall, Head of Markets for EY Ireland commented, “The strength of the Irish economy suggests that even a hard Brexit may not push the country into recession, though it would clearly be very difficult for particular sectors and regions. However, the impressive FDI figures into Ireland, and Dublin’s continued place as the number one relocation destination for financial services firms moving out of London, highlight the opportunities that exist amongst the very obvious risks. Coupled with the fact that most people across the island who want a job have one, this provides a strong platform from which to face the challenges that lie ahead.”