Sunday 21 July 2019

Dan O'Brien: 'Global slowdown yet to impact Irish economy'

'If the incipient slowdowns in Europe and the US continue, they will show up in Ireland's economic performance, and sooner rather later.' Stock photo
'If the incipient slowdowns in Europe and the US continue, they will show up in Ireland's economic performance, and sooner rather later.' Stock photo
Dan O'Brien

Dan O'Brien

Despite the quite extreme uncertainty facing the economy, along with signs of slowdowns among Ireland's main trading partners, the good news from the early weeks of the year is that there is little sign of Irish growth faltering.

The hard data and a couple of important surveys released so far in 2019, coming on top of a range of previously published indicators, point to an economy that is showing considerably fewer signs of slowing than many of its peers.

This happy state of affairs is unlikely to last. If the incipient slowdowns in Europe and the US continue, they will show up in Ireland's economic performance, and sooner rather later.

But so far, so good. While you keep your fingers crossed, here's what you need to know about what we've learned about the economy so far in 2019.

The Live Register

Unemployment benefit recipients continued to fall in December, almost breaching the 200,000 threshold for the first time in a decade. At their worst, in 2012, dole queues reached 450,000. Since then they have shrunk without interruption and across every region of the country.

Another positive from these figures is that the rate of long term welfare dependency is falling faster than short-term joblessness.

As of last month there were fewer than 80,000 people on jobless benefits for a year or longer, down by almost 20pc on a year earlier. Short-term jobseekers were down by 13pc over the same period.

An important threshold was breached in December when the number of young people on the dole fell below 20,000 for the first time in 38 years.

Much of this has to do with more opportunities - in work and in education.

There is no doubt that youngsters were disproportionately affected by the crash of a decade ago, but the commonly held notion that this age group is enduring a permanent change in its employment fortunes is short on evidence.


Last November Ireland had the second lowest (annual) rate of consumer price inflation among the EU28. Prices were just 0.7pc higher than in the same month in 2017. Last week the CSO published the December figures. There was no change in the price level over the month.

For the full year, prices were up 0.5pc on 2017. As the chart shows, this is a historically low rate of inflation. The incredible absence of price pressures in Ireland over more than a decade - despite more than half a decade of strong economic growth - is quite something. It certainly does not point to an economy that is overheating, as some have been warning about for the past couple of years.

It is further evidence of an economy that is enjoying a Goldilocks moment - it's neither too hot nor too cold.

Of course, it is not all rosy. The basket of consumer goods and services that go into making up the headline inflation figure is huge. At any given time, some prices will be rising while some will be falling. Predictably, the cost of housing - including rents, heating, electricity and everything else that is involvement in running a home - accelerated last year to 5pc. That might ease this year, as energy prices fall back, but it will remain an issue owing to the housing shortage.

House prices

Last week also saw the publication of the latest house price figures by the CSO. They showed the first monthly drop in two years in November. Over the course of 2018, property price inflation was down significantly over the previous year and back into single digits.

Among other things, that reflects a continued increase in new builds, bringing supply closer into line with demand.

All that said, it will, in all likelihood, take at least another couple of years before inflation falls to low single digits, if that happens at all.

A final point on property prices, which is often lost almost seven years since prices stopped falling, is that they remain far below their pre-crash peaks.

In Dublin in November, they were still one-fifth below 2007 levels. Outside the capital it was closer to a quarter.

Foreign investment

In the first days of the year the state agency tasked with attracting export-focused foreign firms here published its first estimate for the number of people employed in the companies it assists.

Those figures show that another all-time record was set in 2018.

Almost 230,000 went to work each day in foreign multinationals. That amounts to more than one in eight people employed in the private sector.

During the 2000s, multinational employment stagnated owing to a loss of competitiveness. In recent years, the competitiveness gains made during the recession have meant rapid inflows of new jobs-rich investment. This reflects a still-lean economy and it augurs well.

The public finances

The flood of profit tax revenues into the exchequer's coffers, a very large share of which come from foreign multinationals, continued right up to the end of the year.

In December alone, figures published by the Department of Finances early in January revealed that companies had paid almost €1bn in profits taxes.

Over the course of the year, corporation tax revenues exceeded expectations by €2bn. Despite this, the Government only just about balanced its books last year, something that could come back to bite if any of the (huge) risks that the economy faces materialise.

Consumer confidence

All the figures cited above are backward looking. Sentiment surveys, which given an indication as to how economic agents will behave in the future, are forward-looking.

The monthly KBC-ESRI consumer sentiment index shows some nervousness. Confidence is high by the 20-year standard of the survey, but down on 2017.

That likely reflects the intensifying bombardment of Brexit woe we've all been subjected to.

That said, the December reading was stable on November, and both months were marginally up on October. That reflects how consumers are benefiting from a strong economy, in particular via healthy pay growth. However, these positive developments are being offset in consumers' mind by the uncertainty coming from beyond these shores.

Business confidence

A monthly survey of people who buy for their businesses shows a broadly similar pattern. The Investec Purchasing Managers Index for manufacturing in December showed that business buyers are still upbeat, believing the economy still to be on an expansionary path.

But the headline PMI reading cooled to a nine-month low. This was in part caused by smaller order books, possibly reflecting the slowdown in Ireland's main export markets.

A portend of things to come perhaps?

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