Spending by consumers will be in spotlight
Growth in core domestic spending — consumer and government spending plus real investment — slowed to 3% from an average of 5.5% in the previous two years. Business investment fell back last year, after rising strongly in the previous three years.
This largely reflects the fact that catch-up demand saw a surge in business investment in 2013 to 2015 which could not be sustained in 2016. Business investment in 2016, though, was still at quite a high level.
Meanwhile, consumer spending has not sustained the strong growth rate of 4.5% seen in 2015, averaging growth of 3.2% year-on-year for the first three-quarters of 2016.
Indirect tax receipts were below target in 2016, while after a strong start to the year, new car sales lost much of their upward momentum. Meantime, there has been a marked deceleration in the growth of retail spending since last spring.
The construction sector, though, continued to see strong growth, with output up by almost 12% in the first three-quarters of 2016 on year earlier levels.
House building continued to rebound from low levels, with completions rising by 17% year-on-year in the first ten months of 2016 and commencements also picking up strongly.
Agricultural output continued to grow at a double-digit rate for the third year in a row, following the lifting of EU quota restrictions on milk production. There was continued strong growth in output from a broad range of service sectors, including transport, communications, software, business and hospitality services.
The data suggest growth in exports slowed in 2016. Service exports grew by 6.5% in the first three-quarters, after double-digit growth in 2014 and 2015.
It may be that slower growth in advanced economies last year, combined with the sharp fall of sterling against the euro, dampened the growth of exports in 2016. Thus, a number of indicators suggest growth in the Irish economy lost some momentum in 2016.
However, we should be careful not to overstate the extent of the slowdown. Most indicators still point to a strong performance last year. GDP grew by 4.6% year-on-year in the first three-quarters of 2016, while consumer confidence rose to near 15-year highs. Labour market data also remained robust.
The job growth was spread right across the economy, with particularly strong increases in the hospitality sector, construction and industry.
Ireland’s jobless rate was down to 7.3% towards year end. This compares to a 9.1% rate a year earlier and the peak of over 15% reached back in early 2012. In summary, the economy performed quite well in 2016, but growth lost some momentum and was lower than in the previous two years at around 4.5% for GDP.
There are a number of factors that should help the economy to continue to perform well in the next couple of years. Growth in the global economy is expected to pick up some momentum in 2017 and 2018. Meanwhile, interest rates are expected to remain very low in the eurozone. At home, fiscal policy has turned expansionary.
The recovery in construction, most notably house building, is expected to continue. However, the uncertainty over Brexit and associated weakness of sterling are continuing headwinds for the economy.
Hence, both the Department of Finance and the Economic and Social Research Institute are projecting that GDP will grow by some 3.5% this year, somewhat slower than in 2016.
