Ireland's economy says goodbye to the 'lost decade'
Ireland's lost economic decade is over, according to a new economic forecast, but sluggish economic figures in the UK put this country's momentum at risk.
Goodbody Stockbrokers projects the economy will reach full employment by the end of next year, fuelled by growth in construction and consumer spending. But a slowdown in consumer spending in the UK poses risks to our exporters, on top of the potential for tariffs to be imposed when the UK leaves the EU.
"We have to be aware that the UK growth outlook is going to be a headwind for Ireland over the next 12 to 18 months, and probably beyond then in 2019," Goodbody's chief economist Dermot O'Leary told the Irish Independent.
Figures released yesterday showed UK consumers cut back on spending for a third consecutive month in July, while house-price growth slowed sharply.
The broad-based weakness is being blamed on a squeeze on British pockets, as inflation outpaces wage growth and concerns abound about the health of the economy.
The latest figures leave British household expenditure and the property market at their weakest in more than four years and increases the pressure on UK Prime Minister Theresa May.
"Alongside the renewed squeeze on household budgets, uncertainties linger over the direction of the economy," said Annabel Fiddes, an economist at IHS Markit. "This makes it seem unlikely that consumer spending will recover in the current challenging conditions."
The downbeat reports come days after the Bank of England downgraded its economic outlook and its governor Mark Carney warned that Brexit uncertainty is weighing on business and households.
At home, Goodbody says "Ireland's lost decade is at an end".
"On the back of ongoing momentum, domestic spending will return to its previous 2007 peak this year. We are upgrading our forecasts for core domestic demand ... employment growth of 3.5pc is the most visible indicator of the strength of the Irish economy, with full-time jobs growing at the fastest pace since 1999," Goodbody's economic "health check" for the third quarter states. The report is predicting 4.6pc growth in the Irish economy this year, 4.7pc next year, and 3.1pc in 2019.
"The 2019 forecast for Ireland is clouded in a hell of a lot of uncertainty and that's why we've put a bit of a health warning over the forecast for that year," Mr O'Leary said.
"We have the risk that there's going to be significant tariffs put in place in March 2019," he said adding that the Irish agrifood industry would be the primary sector at risk from this.
"From an Irish indigenous point of view not only does the agrifood business face that particular risk, but it also faces a risk of lower demand because of the weakening consumer."
The report says that if Ireland is to maintain the strong level of growth seen in recent years, capacity constraints in the economy in areas like housing and broadband will need to be addressed. Mr O'Leary said upward wage pressures would likely come about once the economy reaches full employment, but that these would be mitigated as immigration flows would increase the size of the labour force.
"That's going to be key in keeping wage inflation pressures down, and obviously maintaining competitiveness for Ireland," he said.