The economy in 2018: the expert view
Whisper it, but the Irish economy is booming again, with unemployment expected to dip below 5.5pc this year and GDP forecast to grow by around 4pc. With the recovery come challenges. Housing remains a considerable problem the Government must tackle, while many experts have also warned of the risk of overheating. Brexit also looms large. Five prominent economists give their take on 2018.
DERMOT O'LEARY Chief economist, Goodbody Stockbrokers
Numerous politicians in recent years have vowed not to repeat the mistakes of the past, whereby Ireland experienced cycles of boom and bust.
Having gone through the boom of the mid-2000s and the bust of the 2008-2013 period, the growth of recent years has brought Ireland to the verge of full capacity once again. The veracity of those politicians' pledges is to be put to the test over the coming years. Being a small player in the global economy, there are risks that domestic policymakers cannot influence.
While Ireland may have played an oversized role in the discussions around the first stage of the Brexit agreement in 2017, the eventual outcome will be heavily influenced by the state of domestic UK politics. There is little doubt that the fragility of UK politics could prevent an amicable and orderly conclusion to these negotiations. The Irish Government needs to continue the road that it has been travelling successfully, keeping very close to its future EU allies.
Another headline risk facing the Irish economy over the coming 18 months is the impending US corporate tax changes. As Ireland is the '51st State' from an investment point of view, this presents a clear and present danger to inward FDI flows. Maintaining competitiveness in all other aspects thus becomes an even more important feature.
Thus far, simple lip service has been paid to this threat. A more aggressive approach is required. Housing continues to be the biggest risk to competitiveness. Institutional involvement and State-supported building programmes need to be part of the toolkit to produce large amounts of residential units to house skilled inward migrants.
To hold policymakers to account on the issue of competitiveness, the National Competitiveness Council, a body that does sterling work, needs to be given a more prominent role in the national debate.
MARIE SHERLOCK, Siptu
Housing and living standards, Brexit and the digital tax debate will be the key economic challenges in Ireland in 2018.
Six years into the economic recovery, Ireland is facing the prospect of a projected current budget surplus of almost €18bn between 2019 and 2021. The Government will have to make decisions this year that will shape future living standards and how this country grows over the next decade.
Unfortunately the real challenge for Ireland this year is not Brexit or the global economy, but ourselves. Despite talk of prudence and learning the lessons of yore, there are serious distributive and allocative efficiency concerns about the Government's plans. Further cuts to the income tax system will be a crude stimulus giving small amounts to most people at the expense of bringing about real progress in areas like housing and childcare.
Concerns about overheating may be well-founded and no doubt, it is hard to see around corners but insufficient action on housing and infrastructural investment will also impose both economic, social and fiscal costs. Failure to build significantly more housing will ensure that day-to-day State housing supports to the private sector worth almost €0.5bn a year will grow. For workers who need to rent new accommodation, or who are hoping to save to buy, the prospect of prices rising by four times the rate of their pay increases is simply not sustainable. Serious economic competitiveness issues are being stored up here.
Furthermore, we cannot solely rely on an old understanding of the construction sector to predict future labour supply responses. Among the thousands of Siptu members working in the construction sector, we have seen that their work, migration and settlement patterns have evolved since the crash.
Although the prospect of a hard Brexit has retreated, a weakening UK economy, soft sterling and general uncertainty about the outcome of phase two of the negotiations will continue to hit Irish companies exporting into the UK.
The EU digital tax agenda will come centre stage in spring 2018 and is likely to renew the wider debate about Ireland's corporate tax regime.
KIERAN McQUINN, Research Professor, Economic and Social Research Institute (ESRI)
2018 is likely to see another year of strong growth by the Irish economy, however, it is important to note some of the challenges and risks which may lie ahead in 2018.
While the Irish economy has diversified its export base substantially over the past 25 years, any marked decline in the performance of the UK economy will almost certainly impact domestic conditions adversely. In that context, the recent downward revision for future UK productivity rates gives rise to significant concerns. Uncertainty concerning the future outcome of Brexit is likely to exacerbate these productivity issues as evidence of a downturn in UK investment rates is increasingly apparent. Fourteen percent of total Irish exports are still destined for the UK and while foreign-owned firms operating in Ireland are more richly diversified in terms of export destinations, domestically-owned firms are still particularly exposed to UK specific risk.
Recent research by ESRI researchers point to certain domestic risks the Irish economy may experience as the labour market approaches full employment and in the role credit provision may play in the housing market. The considerable pick-up in credit growth, while still not unsustainable, will require vigilance, particularly in the manner in which macroprudential policy is implemented.
We cannot allow credit itself to become a major determinant of house price inflation. The continued expected strong performance of the economy is likely to see demand-side pressures persist in the residential property sector. Similarly, owing to the fiscal rules, the Government will have a significant increase in the degree of fiscal space for Budget 2019. While certain infrastructural deficits in the economy must be addressed, fiscal policy must be employed cautiously to ensure economic activity continues to be sustainable. This comes as increasing evidence points to the relatively limited amount of future labour supply amongst Irish employees.
DR LORETTA O'SULLIVAN, Group Chief Economist, Bank of Ireland
The Irish economy is growing and creating jobs, and the expectation among official bodies and private sector commentators - Bank of Ireland included - is that it will continue to do so in 2018.
Households are spending, firms are hiring, our main trading partners are expanding and the public finances are on an even keel. At the same time, debt levels remain high, the mismatch between demand and supply is causing problems in the housing market, Brexit is making waves and US tax reform is looming. So overall, there is an element of glass half-full and half-empty. These are pretty much the issues and challenges that dominated the year just gone and that will take us into 2018.
Arguably, the external situation is a little more settled now. Political risk in Europe has abated somewhat, and the fact that progress has been made in the first phase of the Brexit negotiations means that the talks can move on to the new relationship between the UK and the EU and a transition period. At home, infrastructural pressures are coming more and more to the fore and with a National Investment Plan also on the cards, needs and priorities in this area will be a key focus over the next while - and not just for productivity and competitiveness reasons.
With the economy back on its feet, wider societal issues and the quality of life are beginning to carve out a more prominent place in the public discourse. This is something that we may see more of in 2018. As growth becomes less about an end in itself and more about a means of improving living standards, the policy challenge will be to ensure our economic model can deliver on this.
TOM HEALY, Director Nevin Economic Research Institute
It is essential that the housing supply emergency be addressed as a top priority in 2018. This will take courageous decisions on how the necessary funding, legislation and institutions can be put in place.
Next in priority is the challenge of reforming the health service and moving towards a single-tier public health service open to all on the basis of need and not ability to pay. Third, we need to address the prevalence of low-paid and precarious work. Precarious work impacts on societal wellbeing and economic efficiency. However, the biggest challenge facing Ireland is not homelessness, poverty, under-employment, debt, precarious work, Brexit, taxation or enterprise competitiveness.
The biggest single challenge is the environment. We have limited time - if any - to begin to reverse the unrelenting march towards global warming and chaotic disruption to the way we live, work and migrate. The world is a village and a crisis in one sphere impacts on everything else. If Ireland does not step up to the plate and play its role in collaboration with other counties, we can hardly complain about the pressures exerted by climate change and a breakdown in global social solidarity. We must lead by example and not just words. Recessions will come and go. However, the long-term damage caused by rapacious capitalism must be addressed. The key role of new forms of public, private and voluntary enterprise in providing Ireland with an alternative to our excessive reliance on foreign direct investment in a narrow number of sectors should be to the fore.