EY Economic Eye - Ireland forecasts revised upwards, but gathering storm clouds should not be ignored

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EY Economic Eye - Ireland forecasts revised upwards, but gathering storm clouds should not be ignored

EY has revised upwards its forecasts for the Republic of Ireland in the firm’s latest quarterly EY Economic Eye update, following continued economic growth across the island. The professional and consultancy services firm projects that the Republic of Ireland will achieve growth in excess of 8% in 2018, before moderating to 4.4% and 4% in 2019 and 2020 respectively...

Ireland will also benefit from over 70,000 net new jobs in 2018, however the country’s resilience and competitiveness will continue to be tested in the face of global and economic political developments as it faces into the consequences of Brexit.

The forecast also projects that wage increases are set to average 3.6% in 2018, reflecting a tightening labour market which will begin to act as a slight recruiting headwind.

Commenting on the report, Professor Neil Gibson, Chief Economist for EY Ireland said, “Irish GDP remains an imperfect measure of economic performance however with that said, a myriad of other data confirms that the Republic of Ireland continues to top the European performance charts. With this growth comes a host of other challenges for businesses such as the ongoing war for talent which our report finds remains a significant obstacle for companies. This challenge is firmly in the ‘nice problem to have’ category, but, coupled with housing price increases, wage costs are rising and will act as a natural break on hiring intentions as well as a potential accelerator of investment in technological solutions.”

According to EY Economic Eye, the Republic of Ireland is enjoying balanced growth across all four engines of growth – Government spending, consumer spending, business investment, and trade –which will help to insulate against a slowdown in any one area. 

Reflecting on this trend, Neil Gibson commented that Ireland’s current strong performance should not distract from the dark clouds which are gathering around the global economy and uncertainty around Brexit, both of which could arrest the very strong Irish growth: “Most economists would see this as a time for Ireland to run a surplus and begin to chip away at the national debt which still stands at over €40,000 per person, however those same economists probably would not have advocated the reduction in spending which took place following the crash. The harsh reality is that Ireland does not have the underpinning infrastructure or public service provision necessary to underwrite the economic vision which it has signed up to. This means that spending is required, but accompanied by a continued focus on cost control – which will not be easy in the face of growing salary pressures across the economy.”

The island’s economies diverge in the face of Brexit.

EY Economic Eye also finds that the divergence in outlook between the Republic of Ireland and Northern Ireland continues to widen as Brexit approaches. Although 2018 growth in Northern Ireland is projected to match that of the UK due to its strong labour market performance, the longer term outlook is for very modest levels of growth, and a small fall in overall employment levels, starting in 2019. The forecasts are predicated on a Brexit agreement being reached which involves a two-year transition period and a Free Trade Agreement thereafter.

Neil Gibson states that while slower growth in Northern Ireland is partially a result of Brexit, it is not the root cause, “A persistent productivity weakness and overreliance on consumers was always going to hamper UK and Northern Irish growth as some point. Uncertainty surrounding Brexit is certainly not helping NI performance, but it would be a mistake to use that as a simple explanation for the malaise. The strong jobs market performance is to be welcomed and it is possible to imagine a set of outcomes relating to Brexit and a reestablishment of a local Executive that would see the region outperform our current forecasts.”

Looking at the potential impact of Brexit on businesses across the island of Ireland, Simon MacAllister, Partner and Brexit Lead for EY Ireland, added that whilst firms may initially have had a ‘wait and see’ attitude towards their Brexit preparations, this has now evolved into undertaking risk assessments and more proactive contingency planning.

“Uncertainty is something firms live with every day, but the continued possibility of a ‘no-deal’ Brexit has led many businesses to move beyond risk assessment and into a contingency planning phase. This involves finding innovative solutions to navigate the possible risks that might adversely impact them, whether they be linked to tariffs and costs, legal and regulatory changes, supply chain disruption or tax matters. Our teams have witnessed this new, more practical phase of Brexit preparations first hand, demonstrating a shift in mind-set among businesses across the island as they look towards March 2019.

Article Published: 06/11/2018