Anthony Foley: Irish employment will grow, unemployment will stay low

On measures other than GDP, the economy is close to a reduction in output

Mon, 31 Oct, 2022 - 15:57

Anthony Foley

There is universal acceptance that performance of the Irish economy in 2023 will be much worse than this year or than last year, leaving the big question of whether or not there is a recession looming.

The popular definition of a recession is two consecutive quarters of decline in national output or GDP, but in Ireland there is a problem with this definition because the more accurate measure of economic performance here is modified gross national income, known as GNI*.

The International Monetary Fund (IMF) in October said it expected global output to grow by 2.7% in 2023, down from the 3.2% expansion in 2022 and growth of 6% in 2021.

It sees the eurozone posting growth of 0.5% next year, which is close to stagnation and expects Germany’s output to contract by 0.3%.

Meanwhile, it expects British GDP to grow 0.3% in 2023, which is very close to negative territory, while it sees the US economy growing by 1%.

For Ireland, the IMF has forecast GDP will expand next year, by 4%, which is very good by European standards. Other major forecasters project slightly different outcomes.

The Organisation for Economic Co-operation and Development in September forecasted the eurozone economy will grow next year, with the German economy contracting and the British economy stagnating.

The European Central Bank in its outlook in September expects the eurozone to grow by 0.9% in 2023, but under a worst-case scenario, warns that the economy would contract by the same amount.

Based on the GDP measure, the Irish economy will grow reasonably well in 2023, but at a much lower rate than in 2021, according to a range of forecasters.

Recent Irish forecasts have come from the Central Bank, the Economic and Social Research Insitute, and the Government in its September budget.

The picture for Ireland changes significantly when using the modified gross national income measure to measure Irish output.

In short, under the internationally used GDP measure, the Irish economy is not heading for a reduction in output in 2023.

However, on alternative measures of output, the economy is indeed close to a reduction in output.

Labour market

The labour market is a source of good news.

Employment growth will continue in 2023 and unemployment will remain low.

The average unemployment rate is expected to be just over 5% in 2023.

By way of comparison, unemployment started this year at over 7% and the most recently available official figures show it fell to 4.4% in the second quarter.

Employment holds up even under an adverse energy shock.

The favourable employment outlook is based on an expectation that the impact on the labour market from the cost-of-living crisis will be seen in the number of hours worked, as opposed to in jobs being lost.