2016 marked the fourth calendar year of positive growth in both Irish GDP and employment, with Central Statistics Office (CSO) figures for the period placing real GDP growth at 5.1%. While 2017 to date has witnessed a buoyant mood, there are undertones of caution due to an increasingly uncertain external environment.
The International Monetary Fund (IMF) bailout and recession now seem a distant memory as the Irish economy continues on its course to become the fastest growing Eurozone economy for the fourth year in a row. As the recovery matures and maintains momentum, economic forecasts continue to be upbeat, with further growth in GDP expected, albeit at a more moderate pace. Growth of 4% is forecast for 2017 compared to an estimated Eurozone growth of 1.7%; with growth of 3.6% forecast for 2018 against anticipated Eurozone expansion of 1.8%.
The Irish labour market continues to exhibit strong growth in 2017, with unemployment at 6.3% in June of this year, down from a peak of 15% in 2012. These improvements appear broad, across both region and sector, with almost all industries registering employment growth. The tightening of the labour market and positive projections for inflation should support moderate wage increases over the period. Moreover, the Economic and Social Research Institute (ESRI) forecast the unemployment rate to show continued improvement, reducing to 6.1% in 2017 and 5.4% in 2018.
Trade developments remain highly exposed to the activities of multinationals. Import activity increased sharply in 2016, particularly in Q4, while export growth slowed overall for the year, partly due to the fall in the value of GDP and the decline in ‘contract manufacturing’ by multinationals. Consequently, net exports had a negative impact on GDP growth in 2016. They are expected to contribute marginally to GDP growth in 2017 and 2018, as exports are expected to increase in line with global trade.
Another key performance indicator for the domestic economy is consumer spending. After increasing by 3.3% in 2016, consumer spending grew by 1.2% on a quarterly basis and by 1.8% in year-on-year terms in the first quarter of 2017. Consumer confidence levels remain at a 15-year high, while retail sales are also buoyant.
In terms of the economic outlook, primary risks to the Irish recovery are external. In particular, Brexit will have an, as yet, unknown long-term impact. For the moment, the main impact is via the value of Sterling. At the same time, there are positive developments externally, with the global economy, including the Eurozone, picking up momentum, which in turn is likely to boost Irish exports. The volume of exports is expected to rise by 5.2% in 2017.
Although the process of Brexit will not actually occur until 2019, considerable uncertainty surrounding the final outcome of negotiations between the UK and the EU as well as potential changes to U.S. tax and trade policies, leave Ireland highly exposed.
The threat of a hard Brexit has somewhat reduced following the UK General Election, combined with the continued strength of recent Irish economic indicators. As the only EU country that shares a land border with the UK, and €1.2 billion of trade between Ireland and Britain each week, the potential implications for jobs, economic growth and government finances, could be significant.
All economic indicators point to a strong economy and one that is primed for additional growth throughout the remainder of 2017 and 2018, whatever challenges are encountered. In the face of global economic and political uncertainty, Ireland remains a stable, competitive and pro-business economy.