Last week’s CSO data on the Irish labour market for the third quarter of the year was stronger than expected.
Robust growth in employment continued, despite the challenge to the economy of the uncertainty of Brexit and despite the sharp fall of sterling this year.
Employment rose by 13,500, or 0.7%, in the quarter, for a year-on-year gain of 57,500, or 2.9%, the same as in quarter two.
The jobs growth was spread right across the economy, with strong increases in the hospitality sector, construction, and industry.
Employment has now risen for 16 consecutive quarters, and is at its highest level since the end of 2008.
Meanwhile, Ireland’s jobless rate is down to 7.5%. This compares to 9.2% a year ago and the peak of 15% in 2012.
Unemployment decreased by 25,000 in the past year to 178,000.
The strength of the labour market should soothe some concerns about the Irish economy, which have raised their heads as the growth of domestic spending weakened over the course of this year.
Business investment declined in the first half of the year, while retail spending has lost momentum since early summer, with sales actually declining in the third quarter.
The pace of growth in new car sales has also eased, since earlier in the year.
Activity indices for the manufacturing and service sectors have fallen back since mid-year, in the aftermath of the vote for Brexit in the UK and the further slump in sterling.
Tax receipts have lost some of the buoyancy evident earlier in the year. Consumer confidence has also come off its highs in recent months.
Some sectors of the economy, though, are seeing increased growth, most notably construction.
Survey indicators for the sector point to strengthening activity, with a pick-up, also, in house prices and mortgage lending in the last two quarters.
While most data suggests that the Irish economy has lost some of its momentum, the labour market figures indicate that it is performing quite well.
CSO data shows that GDP grew by 4% in the first half of 2016, a slower pace than in recent years, but still a strong performance.
Most forecasters expect that GDP growth will average 4% in 2016 and 3.5% next year. While the uncertainty around Brexit remains a headwind for the Irish economy, there have been favourable developments recently, in terms of the near-term growth prospects for the economy.
Global growth has picked up momentum in recent months, with better data from the US, eurozone, the UK, and Japanese economies.
The UK economy, in particular, has held up much better than expected, following the vote for Brexit. Meantime, the latest indicators suggest that growth is accelerating in our two other main export markets, the US and the eurozone.
More, expansionary fiscal policies are also coming to the fore, most notably in the US, where a Donald Trump presidency is expected to deliver a near-term fillip to the economy via tax cuts and spending increases.
Meanwhile, the euro has lost considerable ground against the dollar and sterling in the past month.
In particular, the euro’s recent fall from 90p to 85p against sterling will offer some relief to hard-pressed Irish exporters to the UK, who have had to deal with a sharp decline in the pound this year.
Rising political risks in Europe could weigh on the euro in the coming year, helping to put a floor under sterling, despite the ongoing uncertainty surrounding Brexit.
There is also some speculation about a possible transitional deal between the UK and EU, in the forthcoming exit negotiations.
The UK could retain at least partial access to the single market, but give some ground on immigration, thereby avoiding a hard Brexit.
That would be good news for Ireland.
Thus, while one should not be complacent about the risks facing the Irish economy in 2017 and beyond, there are still reasonable grounds for optimism that it will be able to withstand these challenges.
Oliver Mangan is chief economist at AIB
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