Under those booming numbers the domestic economy is hurting
Is Christmas cancelled? This ominous question headlined the economics update in Goodbody’s daily research note yesterday morning.
For the last few weeks, economists from stockbrokers and banks to the ESRI and the Department of Finance have been unified in their optimistic appraisal of the growth to come in 2022.
But the rapid spread of the Omicron variant has added an asterisk to those forecasts.
With new restrictions on the hospitality sector, work-from-home guidance, and the likelihood of significant Covid-linked absences across all industries in the coming weeks, the expected bright start to 2022 is looking dimmer by the day.
“We can expect more volatility than we thought there would be,” Goodbody’s chief economist Dermot O’Leary told the Irish Independent.
“We can already see mobility indicators reflecting that people are going out less and in the short term that increases the chance we’ll see weaker economic data.”
If Ireland follows a pattern already evident in the UK, that weak data could be about three weeks away. It’s an ironic message given some of the Irish data that came out yesterday morning from the IDA, which reported the biggest increase in net multinational employment ever recorded.
The increase in foreign direct investment jobs in 2021 was 29,000, an incredible achievement in the second year of a pandemic and a sign of great resilience in the Irish economic model.
It’s no wonder the public finances are in such rude health, notwithstanding the billions spent on Covid-support measures since March 2020. Corporate taxes are rolling in at record rates.
Yet look a little beneath the surface and key parts of the indigenous economy are still struggling, widening the gap between the internationally traded sectors and the domestic realm most of us dwell in from day to day.
Last week’s quarterly outlook by Davy highlighted this divergence.
The stockbroker increased its Irish GDP forecast for 2021 to 15.5pc, driven mainly by strong growth in the multinational sector. Yet chief economist Conall Mac Coille pointed out that indigenous output remains 4pc below 2019 levels – effectively a world away from the Facebooks and Pfizers behind the IDA’s numbers.
Meanwhile, Brexit is playing havoc with Ireland’s UK trade, according to the ESRI.
Exports have declined overall but some individual sectors have faced substantial reductions in their exports to Britain, with the food and beverages sectors particularly negatively impacted.
The good news, according to Goodbody’s Mr O’Leary, is that Ireland has the capacity to rebound quickly from an Omicron hiccup.
“We learned in 2021 that the effect of lockdowns are less and less and the ability of the economy to bounce back is stronger,” he said.
The caveat attached to that is inflation.
While government supports will be necessary to carry affected sectors through further restrictions, more public spending runs the risk of pushing inflation even higher.
For that reason we should all hope that Leo Varadkar’s confidence the Omicron wave will be over relatively quickly will bear out.