Wednesday 21 March 2018

Politicians need to step up and tackle the infrastructure challenges of fast growth

House prices help judge the strength of the economy. Photo: Bloomberg
House prices help judge the strength of the economy. Photo: Bloomberg

Neil Gibson

Producing forecasts for the all-island economy remains an extremely difficult exercise given the high degree of uncertainty over Brexit.

Our latest EY Economic Eye forecasts for the island are based upon an assumption of free trade, or close-to-free trade agreement, and a relatively frictionless Border.

How likely either of those outcomes is remains to be seen.

The forecasts continue to reveal a stark contrast on the island, with the forecast for the Republic revised upwards since our last quarterly outlook, with growth of 4.5pc projected in 2018 and 3.8pc in 2019.

Northern Ireland is projected to grow by a much more modest 1.2pc in 2018 and pick up slightly to 1.5pc in 2019.

In the labour market, a net 51,800 jobs were added in the year to Q3 2017. We project 226,300 jobs to be added over the next five years. The vast majority of these will be in the Republic, with Northern Ireland projected to endure a slight contraction in the labour market as consumer pressures begin to weigh more heavily on what is a relatively domestically focused region.

The positivity in the Irish outlook partly reflects the strength in the global economy. Indeed Ireland may well enjoy Indo-China growth rates in 2017 - the Economic Eye forecast suggests a striking 6.7pc rate of growth.

GDP remains an unreliable indicator of overall economic performance taken in isolation.

However, tax receipts, house prices, unemployment and employment rates all corroborate the strength of the economy.

Perhaps not as strong as the GDP data would suggest, but certainly Europe's fastest growing.

Working across the island, the contrast in economic performance does not appear as stark as the headline data suggests.

Clearly the Republic is growing much faster, but the North continues to present signs of a more strongly performing region than growth figures would indicate.

The labour market continues to tighten, the skyline of Belfast remains dotted with cranes, and firms increasingly cite challenges in finding labour. Similar trends, albeit less pronounced, are being experienced in the Republic.

Hearing from our clients, I can report that Brexit is very much top of the agenda, with scenario planning remaining the order of the day for large corporates.

However, it is not the only risk. Escalating costs, particularly in Dublin, are moving up the agenda to join talent which comes up at almost every meeting.

Increasingly, the challenge of finding the right people is expanding from particular niche roles to a more broad challenge across all activities and skill levels. We forecast unemployment to fall to 5.8pc in 2018 and the last time it was this low (2008), net migration exceeded 100,000 as firms scrambled to find the people they needed.

The talent search is made increasingly complex by the changing nature of jobs across an ever-widening list of sectors.

Disruption and emerging technologies are changing business models and altering the skills mix. We still project a healthy labour market in Ireland, but the nature of the growth will be very different.

Against the backdrop of Brexit, geopolitical uncertainty and disruption, the current performance of the Irish economy appears all the more remarkable.

Fiscal policy does need to step up to meet the infrastructure challenges necessary to accommodate fast growth. Equally, care must be taken not to fuel overheating. However, given the backdrop of risks and the period of extreme cold that Ireland has endured recently, isn't it refreshing to be worrying about overheating?

Prof Neil Gibson is chief economist at EY Ireland

Irish Independent

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