Ibec warns on growth as construction cools

Ibec has brightened its outlook for Ireland’s growth prospects, but has warned against complacency, with the economy close to capacity.

Ibec warns on growth as construction cools

By Geoff Percival

Ibec has brightened its outlook for Ireland’s growth prospects, but has warned against complacency, with the economy close to capacity.

The employers’ representative body now expects the economy — in GDP terms — to grow by 8% this year and by 4.5% next.

The first figure is significantly up on the 5.7% growth outlook for 2018 communicated in Ibec’s last economic quarterly, in August, while the 2019 forecast is based on the UK inking a positive Brexit deal with the EU.

“If this does not happen, 2019 will be more challenging,” the organisation warned.

It said the likely continued growth next year will be weaker than previous years, anyway, “as we are now at a mature phase of the business cycle, with the economy close to capacity”.

It also reiterated its call for volatile corporation-tax receipts to be ring-fenced and used to finance one-off projects, to sustain growth and minimise the potential negative consequences were this revenue stream to fall.

According to Ibec’s head of tax and fiscal policy, Gerard Brady: “The economy is growing, trade remains robust — if uneven — and households are clearly benefitting through rising, real incomes. Consumer spending is growing by almost 4% in volume terms and has the potential to grow further, as household balance sheets normalise into 2019.

“We have been here before, however. Previous periods of rising living standards gave way to higher costs for businesses and households, a lack of focus on productivity, and an eventual erosion of the basis for sustainable growth.

“If we cannot avoid a renewal of our boom-time wage-cost spiral, we will crowd out our exporters and see inflation erode the benefits of wage growth. We cannot use a tight labour market, rising oil prices, and future interest-rate hikes as excuses for inaction on the things we can control — like investing wisely in skilled workers and controlling other areas of our cost base.”

Ibec’s forecasts coincide with the latest monthly construction sector survey from Ulster Bank. A barometer of the country’s building sector, it shows that October suffered the weakest rise in construction activity in three-and-a-half years. While activity in the sector has consistently grown for 62 straight months, actual growth has been easing for the last three months.

Nevertheless, Ulster Bank economist Simon Barry said he would be “surprised” if signs of renewed improvement weren’t evident in the coming months.

“We think at least some of the recent slippage likely reflects the usual ebb and flow of the headline survey results,” he said, adding that new business orders are “holding up well” and that firms are continuing to hire “at a very solid rate”.

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