During 2017, the Irish economy successfully coped with the Brexit headwinds and the ongoing weakness in sterling and, above all, it has managed to sustain and build on levels of job creation evident in 2016, writes Kyran Fitzgerald.
Growth, here, even using the new gross national income (GNI) measure, which seeks to account for statistical distortions caused by the activities of multinational firms has been remarkably high, putting the country at or near the top of the European league table.
If presence at football World cup finals was decided on the basis of national business performance, we would certainly be on our way to Moscow and confident that we would top our group.
Back in the real world, all the classic signs of economic recovery are in place. The roads, notably in Dublin, are choked with traffic. Many restaurants are booked up. The unemployment rate fell to just over 6% in September.
Three years ago, the Economic and Social Research Institute predicted the jobless rate would fall to 5% by the end of the decade. Given it had peaked at almost 16% in the dark days of 2012, this appeared at the time to be a rather optimistic scenario. In fact, we’re already closing in on the 5% figure. But we need to take care not to presume a low official jobless rate means the vast majority of people are gainfully employed.
In recent months, there has been speculation that we had reached a state of ‘full employment’ — as there will always be a minimal percentage of people between jobs.
Economists at Davy Stockbrokers refuted this idea, pointing to the lower proportion of the Irish population actually in employment.
The Finfacts website also rejects the ‘full employment’ idea. Michael Hennigan, its editor, estimates that the ‘broad unemployment’ rate in late Spring stood somewhere between 15-18% and that at the height of the crisis it reached 25%, bringing us closer into line with Spain in this regard. This broader definition includes the underemployed and those on Government schemes.
In April 2017, there were 264,400 on the live register and another 67,400 on Government schemes bringing the total to 331,000.
The live register figures are being whittled away. In September 2016, the seasonally adjusted figure was just over 291,000. A year later it was just over 249,000. There are signs that this decline has slowed to a crawl which may be down in part to a surge in immigration and the return of so called discouraged workers to the labour force.
This debate is of relevance to policymakers. If we accept the argument that there is a reserve army of the unemployed, underemployed and discouraged out there, then we need not be too concerned that our recovery will be choked off by a jump in wage inflation. The ESRI warns a surge in construction activity could see the labour market tighten, plus a surge in spending in the shops that would erode national competitiveness — but they may be overly pessimistic.
We can, of course, live happily with wage growth once the productiveness of the economy as a whole and the people working in it keeps growing. Irish output has been driven ever upwards in large part by the wave of foreign direct investment (FDI) that continued to flow during the recession and thereafter.
Our labour force benefited from an infusion of productive workers from Eastern Europe, in particular, during the noughties boom and is now doing so again.
Many skilled Irish are now returning. The challenge will be to encourage further return migration, through tax measures and the provision of relatively inexpensive housing while ensuring the workforce here continues to gain in productivity and adaptability.
A positive development has been growing evidence that the recovery is spreading to larger centres outside Dublin, with Cork, Limerick and Galway already acting as growth focal points. The number of projects being announced in Limerick is particularly noticeable.
Improvements in the country’s roads network have ensured the economic benefits of such resurgence can be spread much more widely in a geographical sense than in the past.
Ironically, the new motorways have also contributed to the bypassing in economic terms of many smaller towns and villages across the country. The Government has been stepping up its efforts to ensure the recovery is felt in a more widespread way. Brexit uncertainties have not helped. A weak pound meant that the lack of visitors from the UK was felt in many border counties in particular. The prospect of a hard Brexit may also have deterred firms in areas away from the big cities from embarking on investments.
The apparently successful conclusion of phase one of the negotiations between Britain and the EU-27 and the view that a ‘soft Brexit’ could be the final outcome, could act as a trigger for a recovery in spending.
The Government has announced a Regional Action Plan for Jobs Initiative, the central pillar of which is to create 200,000 jobs by 2020. This would include 60,000 jobs backed by Enterprise Ireland.
Former Enterprise Minister and Tánaiste, Frances FitzGerald, told the Dáil in November that almost two thirds of new jobs created by EI-backed firms and over half of those by IDA-backed firms were outside Dublin.
One suspects that many of these, however, were in neighbouring counties such as Louth, Meath and Kildare.)
A 2016 survey carried out by Local Enterprise Offices, covering SMEs and micro firms, highlighted three consecutive years of local jobs growth. It would be interesting to discover just how the Brexit vote
of June 23, 2016,
impacted on this activity. In 2016, employment in LEO firms rose by almost 3,700 to 34,634.
In 2016, IDA enjoyed a bumper year with employment reaching record levels. The signs are this trend has been sustained. In the first half of 2017, IDA-backed job approvals at over 11,000 were up 22% on the same period in 2016. The jobs being created are not all in one sector, but have occurred in life sciences, content and business services, technology and international services.
Launching the interim job figures, IDA CEO, Martin Shanahan, pointed to talent and skills availability as being the number one issue in the minds of investors.
“Our clients are very happy with the third level system of education, but believe that we need to address the areas of housing availability and cost as well as personal taxation if we are to attract and retain talent.”
And he added: “2017 has brought the competitive nature of FDI into sharp relief. Other jurisdictions are fighting hard for investment.”
One development of potential significance is the news that the Trump administration is close to passing an ambitious slate of tax reforms following a narrow victory in the US Senate. One of the proposals is a dramatic cut in the rate of corporation tax from 37% to 20%. This clearly poses a challenge for Ireland which has been name-checked a number of times by the President.
The election of Emmanuel Macron as President of France has also led to a renewal of the pressure at EU level for tax harmonisation, something which the Irish Government will resist. However, Dublin is aware that concessions must be made if the country is not to be isolated. Measures to curb tax evasion by multinationals are being taken. The impact on investment has not been great to date, but this could change.
On a positive note, some key announcements in 2017 have included: 600 Microsoft jobs in Dublin; 500 from online recruiter Indeed; 330 from Merck/ MSD in Carlow; and 400 from Northern Trust in Limerick. And the city’s new film studios are also benefiting from an upsurge in activity in the sector.
Major urban renewal projects are planned for Cork, Galway and Limerick.
IDA clients are also very positive in surveys, with 72% planning to increase headcount in the next 18 months. 50% describe their growth prospects here as ‘excellent’, while 76% say they’re trying to expand the mandate of their Irish operations.
The IDA is on target to achieve its goal of 80,000 new jobs over the period 2015 to 2019. Jobs growth looks set to continue assuming the international outlook does not cloud over.
The Eurozone has rebounded since January and the long feared ‘correction’ in China has yet to occur.
Global economy sceptics warn that a series of asset ‘bubbles’ are underway.
However, in Ireland lending remains at relatively subdued levels and debts are being repaid by businesses and consumers while the Government is keeping a lid on public spending.
The Irish people are remaing sensible — clearly having previously learned a very hard lesson.