Oliver Mangan: Irish economy strong despite many challenges

Oliver Mangan: Irish economy strong despite many challenges

The CSO has now published national accounts data measuring the performance of the Irish economy for the first three quarters of 2019.

These show that it has been another strong year for the economy, despite having to contend with considerable uncertainty over Brexit and a marked slowdown in global activity.

The two main engines of growth in the economy this year have been consumer spending and exports, most notably service exports.

The CSO data show that the volume of consumer spending grew at quite a steady 3.5% year-on-year rate in the opening three quarters of 2019, in line with its performance in 2018.

Core retail sales — excluding the motor trade — were up by 4.5% over the period.

Meanwhile, total car purchases — including new and second-hand imports — remained at the high levels reached in 2018.

Consumer spending is being driven by strong growth in employment and earnings.

The latest labour market data are for the third quarter of 2019.

These show that employment was up by 2.4% on an annual basis, with the economy adding almost 54,000 jobs compared to the same period in 2018.

Meanwhile, wages rose at a steady 3.5% year-on-year rate over the first three quarters of the year.

Exports have been performing well in 2019, rising by over 12% in the first three quarters of the year, though the data can be distorted, especially on the goods side.

Notably, service exports rose by almost 14% in the period, driven by strong increases in exports of IT and business services.

Although there was a strong performance by the economy overall in 2019, some sectors saw a weakening in activity.

Business investment, in particular, was held back this year by the uncertainty around Brexit.

It was down by 8% in the third quarter on year earlier levels.

Meantime, while housing output continued to rise, with new completions increasing by 18% in the year to September, there has been a softening in non-residential construction activity.

Here, output was unchanged in the third quarter of 2019 from year earlier levels.

Overall, construction output rose by 2.4% in the first three quarters of 2019, having grown by 11% in 2018.

Manufacturing activity also lost momentum in the second half of this year, with output virtually unchanged in the third quarter from a year earlier. This is consistent with AIB manufacturing data which indicate that the sector flatlined in the second half of 2019.

Ireland, then, has not been immune to the sharp slowdown in international trade and global manufacturing activity seen in 2019.

Overall then, while 2019 was another strong year for the Irish economy, there clearly has been a weakening in activity in some sectors.

Thus, GDP growth at around 5.5% in 2019 will be lower than in recent years.

A better measure of underlying activity is modified final domestic demand.

It grew by over 4.5% in 2018, but growth slowed to just 2.5% in the first three quarters of 2019.

Nonetheless, key economic metrics have continued to improve this year.

There was further good growth in tax revenues, which were up by 6.7% in the first 11 months of the year.

Corporation tax receipts are, again, ahead of expectations, while the other main tax heads are in line with forecast.

As a result, the budget surplus is set to increase further this year.

The unemployment rate also continues to move lower, albeit at a slower pace than in recent years.

The jobless rate fell to 4.9% in the third quarter, down from 5.2% in the previous quarter.

Most encouragingly, the long-term unemployment rate has fallen to just 1.4%.

The economy is, thus, getting very close to full employment.

All in all, then, a good report card for the Irish economy in 2019.

- Oliver Mangan is chief economist at AIB

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