Five reasons to be upbeat about the Irish economy
THE Irish economy is set to become the fastest growing in Europe this year with a range of indicators pointing in the right direction.
And ahead of the upcoming budget, we are also recommending a budget adjustment of €500m - a figure lower than had been anticipated by many.
Here are five reasons to be upbeat:
1. Employment: Jobs growth has continued with full time employment up 3.3pc in the year to the first quart of 2014. The fall in the unemployment rate to 11.5pc, down from its 15.1pc peak in February 2012 is exceptional. Amongst 50 economies only Ireland has seen its unemployment rate fall by 1.5 percentage points over the past twelve months to July.
2. Economic indicators: The PMI surveys are closely watched in global markets – giving a timely leading indicator of where GDP growth is going to go for a range of countries. Ireland’s composite PMI reading has averaged close to 60 in recent months. In contrast, the euro area composite was just 53.8 in July, with Germany at 55.7 and only the UK coming even remotely close to Ireland at 58.8. Ireland’s multinational sector and volatile data makes the relationship between the surveys and measured Irish GDP growth noisy – but the PMIs probably still capture the underlying trends.
3. Tax Revenues: Sceptics often question the reliability of surveys and even the official employment and GDP data for Ireland. But tax revenue growth is the acid test that the economy is truly recovering. Tax revenues grew by 6.4pc in the first seven months of 2014, 2.5pc ahead of budget targets and with income taxes up 7.6pc, VAT by 7.2pc and excise duties by 5.6pc. PRSI receipts – which are more broadly spread across the income distribution grew by 8.4pc.
4. The UK economy: Official statistics on Ireland’s trading partners are distorted by the multinational sector. Weighted by employment, 50% of manufacturing jobs are still probably directly exposed to the UK economy. The strength of UK economic growth has clearly caught most commentators by surprise with GDP expected to grow by 3pc in 2014. Also, Sterling has strengthened, breaking through the 80 pence threshold against the euro and helping profitability amongst Irish exporters
5. Room to bounce-back: Irish GDP is still close to 5pc below its pre-recession peak, and the unemployment rate is still high at 11.5pc. This suggests there is still a lot of spare capacity in the economy, particularly in the construction sector where housing starts are still far too low. With the right policies to alleviate bottlenecks and constrained land supply construction sector activity to expand sharply – quickly adding up to 50,000 jobs.
Conall MacCoille is chief economist at Davy Stockbrokers