EY’s Economic Eye Winter Forecast: Strong 2016 beats expectations, but further uncertainty ahead for Ireland in 2017

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EY’s Economic Eye Winter Forecast: Strong 2016 beats expectations, but further uncertainty ahead for Ireland in 2017

Ireland’s economy is forecast to grow by 2.7% per annum over the next four years and employment will continue to rise, however the island’s resilience is likely to be tested moving into an uncertain 2017,

according to the latest EY Economic Eye Winter Forecast published today. The report found that despite the seismic shift in the global economic and political movements, Ireland’s economy will continue to prosper with 3.1% growth expected in 2016, 2.9% in 2017, and an average growth rate of 2.7% between 2016-2020.

Commenting on the report, Neil Gibson, Economic Advisor to EY Economic Eye said: “With uncertainty ahead of us, any economic forecasts must be highly conditional at this point, and that is likely to be the case for at least the first half of 2017 as divorce negotiations between the UK and the EU continue. However, the island economy, and the Republic in particular, enters this turbulent period in ruder health than might have been expected, with employment rising and growth in Ireland continuing to top the European charts.”

Strong labour market despite Brexit uncertainties

According to Economic Eye, the pace of jobs growth over 2016-2020 will be slower in the Republic of Ireland than in the 2012-2015 recovery phase, however it will continue to grow and will close in on surpassing the previous peak employment levels witnessed in 2007. Ireland’s employment will also outperform Northern Ireland and the UK, with NI set to lose employees in the short term.

The civil service in the Republic of Ireland is expected to maintain its current size, while health and education employment is projected to add over 14,000 jobs, as Government spending growth averages 2.3% over 2016-2020, reflecting Ireland’s post austerity public finances. Furthermore, following its gradual emergence from a very challenging economic downturn, the retail sector is expected to gather significant pace, with an additional 24,000 jobs forecast driven by consumer spending – having recorded less than half of this (11,500) in Ireland’s first recovery phase – while the construction sector will grow by 20,700 jobs. Meanwhile, the information and communications sector is expected to gain a further 10,700 jobs while growth slows in Northern Ireland.

However, not all sectors are predicted to perform as well post-Brexit, with the report finding that the investment and export orientated sectors will face the largest downside risks to their prospects. As such, agriculture is projected to lose 10,500 jobs by 2020, having gained close to 30,000 on an all-island basis since 2012. Factors driving this forecast include increased costs and the burden of trading cross jurisdiction, as well as continued currency volatility, however businesses are already actively thinking about identifying new markets and creating efficiencies where possible to deal with these challenges.

Neil added: “The variety of jobs created recently in Ireland is welcome and is helping to drive down unemployment through the regions, but clearly the potential implications of tariffs and the shifts in the exchange rate, impact more severely on certain sectors than others. Though the outlook is for Ireland to create more jobs, much depends on the detail of the exit deal.

Brexit creating uncertainty but consumers still forecast to increase spending

Head of Markets for EY, Michael Hall added: “The UK’s decision to leave the EU earlier this year created severe uncertainty for businesses and consumers North and South, however our latest Economic Eye finds that the outlook is far more positive than we initially might have thought. Brexit presents an obvious investment opportunity for the Republic, as it will be the only English speaking country in the EU and will be an attractive option for companies considering relocating from the UK.”

He continued: “To ensure that our domestic exporting businesses can continue to thrive in what will be a potentially uncertain period over the next few years, it will require collaborative action from the Government, EU, and public private partnerships and we will continue to scenario plan and help our clients navigate through his change”.

While the UK’s recent decision to leave the EU has resulted in a weakened Sterling and a shifting in trade patterns and consumer behaviours in both Northern Ireland and the Republic of Ireland, EY Economic Eye forecasts that between now and the end of the decade, growth in consumer spending is expected to average 2.7% per annum, almost 1.5 percentage points faster than NI. This, coupled with low inflation, more people in employment and growth in disposable incomes of 3% per annum will combine to propel growth.

The 2016 data tells us clearly that firms, though they may be worried, will continue to go about their business until such time as the trading conditions change. This means the island economy enters 2017 in a fairly robust state, but with volatility and the spectre of inflation in the UK on the horizon, the New Year is projected to be tougher going,” Neil Gibson concluded.

Article Published: 14/12/2016