Economy to grow if hard Brexit can be avoided

Economy to grow if hard Brexit can be avoided
Picture: Alpha stock image/ Nick Youngson.

The latest CSO data on the Irish labour market, which are for the final quarter of 2018, show further solid jobs growth, writes Oliver Mangan.

Total employment increased by 2.3% year-on-year to 2.28m. Employment rose by 2.9% in 2018 as a whole, with particularly strong increases in construction and a range of service sectors.

Meanwhile, the unemployment rate fell to 5.7% in the latter stages of the year. The labour market data are in line with the strong growth seen across the Irish economy last year.

Exports continued to perform very well in 2018, rising by over 9% year-on-year in the first three-quarters of the year.

The value of goods exports rose by 15% in 2018 to €141bn, led by very strong growth in exports of organic chemicals, medical and pharmaceutical products.

Last year also saw strong growth in all the main components of domestic demand. Consumer spending was up by 3% in the first three-quarters of 2018.

Core retail sales — which exclude the motor trade — rose by close to 4% in the full year.

Meanwhile, there was particularly strong growth in government spending, which rose by 5% in the first three quarters of the year.

Investment also grew strongly last year. Construction output was up by 17% in the first three-quarters of 2018.

There was particularly strong growth in house building, with completions for the year rising by 25% to over 18,000 units.

Business investment, which can be volatile, rebounded, having declined in 2017, according to CSO data.

Economy to grow if hard Brexit can be avoided

The agricultural sector, however, had a challenging year. Adverse movements in its terms of trade compounded difficulties caused by unfavourable weather, leading to much higher inputs costs.

As a result, farm incomes fell by 17% in 2018. Not surprisingly, employment fell in the sector last year.

After six years of very robust growth, though, there are signs that while still performing strongly, the Irish economy will lose some momentum this year.

This is hardly surprising for a very open economy like Ireland, given that the rate of growth in the global economy has been slowing since last summer.

Indeed, some data for 2018 suggest that the Irish economy may have slowed somewhat over the course of last year. In particular, employment growth slowed in the second half of the year.

Other indicators such as the PMIs for the services, manufacturing and construction sectors have been on a softening trend since the summer.

They weakened further in January 2019. It is important to note, though, that all three PMIs are still at levels consistent with strong growth by the economy.

On the consumer side, confidence has also slipped back from its highs of last summer, though it still remains at strong levels. Notably though, there was a sharp decline of 13.7% in new car sales in January.

Nonetheless, growth this year should be underpinned by continuing very low interest rates, rising employment and incomes, the ongoing rebound in construction activity, as well as a more expansive stance to fiscal policy.

As a result, most recent forecasts are for the Irish economy to grow by 4% or slightly above this year, provided a hard Brexit is avoided.

Oliver Mangan is chief economist at AIB

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