Competitiveness pressures need to be addressed to cement Brexit opportunity
- 236,700 net new jobs across the island of Ireland projected by 2022
- EY’s Economic Eye forecasts 4.9% GDP growth for ROI and 1.1% GDP growth for NI in 2018
- 60% of business leaders say failure to attract and retain top talent is the biggest challenge they face
- Businesses now making ‘no regrets’ decisions in relation to Brexit
Dublin, 25 June 2018: The EY Economic Eye Summer Forecast, which launches today, projects that the Republic of Ireland (‘ROI’) is set to enjoy GDP growth of 4.9% in 2018 and 3.8% in 2019. This is more than three times the rate in Northern Ireland at 1.1% in 2018 and 1.2% in 2019. The report anticipates growth of 236,700 net additional jobs in the period 2017-22 across the island of Ireland and shows that after 10 years, employment on the island has finally surpassed the peak 2008 level, albeit structured very differently.
Additional findings from The EY Brexit Tracker reveal that 21 financial services organisations have confirmed that they will move all or some of their operations from the UK to Dublin, since the day of the Brexit Referendum result. This places Dublin as the most popular post-Brexit location, ahead of Frankfurt (12), Luxembourg (11) and Paris (8).
Neil Gibson, Chief Economist, EY said: “The impressive growth rate Ireland has experienced since 2015 looks set to continue, supported by Dublin’s top-table position as a preferred post-Brexit destination. However, if we are to sustain growth at current rates, we must retain a focus on competitiveness. The Spring Economic Statement last week showed us that the Government is walking a fine line between not overspending, and investing in growth-enabling infrastructure. There will be plenty of demands for increased spending and tax cuts; careful prioritisation will present a new challenge for politicians.”
“Ireland’s impressive growth may be somewhat overstated by headline GDP figures, but data on job creation levels and tax receipts all point to a fast-growing economy. The forecast is for headline growth rates to fall back from current levels and job creation will also moderate as a tighter labour market begins to impact. However assuming a relatively smooth Brexit, which clearly remains a risk, Ireland is projected to remain one of the fastest-growing developed nations in the world. This growth is placing considerable pressure on policy makers to avoid a loss of competitiveness by ensuring sufficient housing and infrastructure investment is realised in a timely fashion.”
Just 5% of ROI firms and just 3% of NI firms have a Brexit strategy in place, according to Intertrade Ireland’s Quarterly Business Monitor. Intertrade Ireland also found that 42% of businesses are now sourcing their Brexit news from social media, indicating how hard official agencies will have to work to ensure businesses are fully informed. This is perhaps not surprising given the high level of uncertainty, arguably Brexit should be one of the risks a good business plan incorporates or considers, rather than having a separate ‘single issue’ document.
Economic Eye focuses on three key areas of consideration when it comes to competitiveness – People, Place and Price as these are the topics most frequently raised by clients.
The report shows that businesses are actively looking at new locations across the island, reacting to both Brexit and to growing price differentials. Costs, which were such a focus for businesses in the immediate post-crash years have returned to the corporate agenda as property costs accelerate and salaries begin to edge upwards in particular sectors and roles. However, across all aspects of competitiveness it is talent that stands out as the number one priority.
“In a modern, knowledge-driven economy, talent is key to growth. Finding the right blend is becoming harder as the labour market tightens and technology changes business models. Refreshing talent strategies is essential for businesses looking to compete effectively. This is more than simply looking at recruitment practices. The talent journey starts before businesses even know they need to hire and continues long after staff leave. Embracing this continuum is yielding benefits for the most successful organisations across the island,” said Neil Gibson.
According to EY Economic Eye, the level of house price and rent inflation in ROI is adversely impacting on overall competitiveness.
“Property prices in Ireland are continuing to rise. Such is the level of property demand, there is little chance of supply catching up quickly, despite the best efforts of policy-makers - and double digit rises for 2018 and 2019 look likely. The current rate of increase is unsustainable and it is already damaging competitiveness, with inner city rental costs a particular concern,” he continued.
The third core competitiveness pillar identified in the report is Place. The National Development Plan makes specific reference to Ireland’s five main cities, as Ireland’s Government attempts to spread economic growth outside of Dublin.
“If Ireland is to remain competitive and continue to grow strongly, improved infrastructure is key. Careful prioritisation of the most economically-beneficial projects will be essential and challenging, given the clear need for most of the investments set out in the National Development Plan. The recent announcement of the €4bn Project Ireland 2040 funds is a welcome step in getting from plan to delivery,” Neil Gibson added.
Neil Gibson concluded: “The overall economic outlook for Ireland remains strong. The mood in the market is positive at the moment, a significant number of new jobs are projected to be created over the next four years as the country continues on an upward trajectory. The question still remains; what will a post-Brexit Ireland look like? In the face of slow-moving Brexit negotiations, Ireland’s competitiveness of place, people and prices is a priority. At the moment, we are seeing businesses pushing forward and making ‘no regrets’ decisions, or adapting their existing strategy to accommodate a range of possible outcomes. Our clients are looking at things like revenue forecasting, supply chain analysis and cross-jurisdictional tax planning among others. As we move towards March 2019 and more clarity emerges, businesses will move from planning to implementation.”
Read the Economic Eye summer forecast.