Irish economy holding up despite ongoing UK soap opera

Irish economy holding up despite ongoing UK soap opera

The soap opera that is Brexit continues to drag on, with the latest developments in the UK parliament in the past week still leaving us none the wiser as to exactly how and when things will play out in the end.

But, whatever happens on the Brexit front in the coming months, it is more than likely set to be bad news for Ireland, assuming - of course - there isn't a second referendum and the UK decides to stay in.

At this stage, the only consolation is that it appears most UK politicians want to leave the EU with some kind of deal, a soft rather than hard Brexit.

The problem we have at the moment is the uncertainty of the whole thing, and this is affecting investment and consumer spending decisions, both in the UK and Ireland.

And the longer the uncertainty, the more negative impact there is likely to be on the two economies.

But as things currently stand, the Irish economy is holding up quite well.

Economic indicators in the past week saw the jobless rate fall in August and tax receipts up to the end of last month running €233m ahead of official Department of Finance estimates.

After increasing for four months in a row up until July, the numbers of people out of work fell in August by a seasonally-adjusted 1,800 to 126,000, with the jobless rate dropping to 5.2% from 5.3% in the two previous months.

The current rate is almost an eleven percentage point improvement from the peak of 16% hit in January/February 2012 during the financial crisis.

Furthermore, Ireland’s jobless rate is over two percentage points below the current eurozone average of 7.5%.

The most recent official employment numbers from the CSO showed 2.3 million people at work in the second quarter, with a net jobs rise of 45,000 in the year, and eleven of the fourteen sectors covered by the data posting a year-on-year increase.

Of course, there will be those who will argue that employment growth has peaked, given that the annual rise in the numbers at work in the opening quarter of 2019 was 81,000. Nonetheless, the figures are still positive, pointing to a robust labour market.

Meanwhile, the country’s public finances remain in a healthy condition. An Exchequer deficit of €625m was recorded to end-August compared to a deficit of just under €1.82bn in the same period last year.

The €1.19bn year-on-year improvement was driven by increases across all revenue streams; tax, non-tax and capital receipts.

Tax revenue was boosted by strong performances from corporation taxes and excise duties. The positive budgetary position should give Finance Minister Paschal Donohoe ample leeway in Budget 2020 on October 8 to provide stimulus measures to combat Brexit if so desired.

However, it wasn’t all good news on the economic data front in recent days. Both the manufacturing and services purchasing manager indices (PMIs) came in on the soft side in August, but that was probably as much to do with the concerns over global trade as Brexit.

And therein lies the problem, it is not just Brexit that is likely to impact negatively on Ireland over the next 12 months, but other issues too, including world trade - the imposition of tariffs - and the health of the global economy, particularly the US.

Factory activity shrank for the third successive month in August and at a similar pace to July. The recent dip in activity in the sector was the first since a near identical three-month downturn in early 2013.

This was just before Ireland's economy began its run as the EU's best performer for each of the last five years.

Although the services sector PMI fell last month and grew at its weakest level since January, it did however remain above the key 50-mark that separates growth from contraction, as it has since 2012, when a rapid economic recovery began to take hold.

All in all, the Irish economy has so far managed to weather the uncertainty created by Britain’s June 2016 vote to leave the EU, although there are some signs from leading indicators, such as the manufacturing and services PMIs that things will start to take a turn for the worse in the coming months.

But as we wait to see how things pan out on the Brexit and global trade fronts, all we can really conclude at this stage is that the risks to Irish economic forecasts - growth, employment and public finances - for 2020 are tilted to the downside.

That said, barring a hard Brexit I still think GDP growth will be positive as will employment growth, but just not as high as 2019.

I'm currently looking for GDP growth of 4.5% this year and 3% in 2020, with net employment growth of 45,000 in 2019 and 20,000 next year, very acceptable numbers all things considered.

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