Tuesday 16 October 2018

Economy good but caution required



The Organisation for Economic Cooperation and Development delivered a timely if not dire warning last week that property prices here "may increase more strongly" which would boost further construction activity in the near term but "may induce another property bubble" associated with a strong surge in credit growth. At this relatively recent remove from the economic collapse, reference to a ''property bubble'' is enough to chill even the most optimistic going forward. So the analysis should be borne in mind by the Government and all policy makers while simultaneously meeting the many challenges which still exist in the broader economy.

That said, it was only last March that the OECD outlined many positives since the recovery. For example, living standards here are high, with recent improvements underpinned by the strongest post-crisis output recovery in the OECD. The economy has demonstrated impressive durability over the past three decades. Average wages are now comparable with the top tier of OECD countries and income inequality is reduced through the highly redistributive tax and transfer system. At the same time, people report a high level of work-life balance, feel safe in public spaces and have strong social connections, according to that analysis.

Furthermore, the economic recovery has broadened to domestic demand. Irish export performance has displayed sustained improvement and business investment by local firms is now recovering strongly, particularly in the construction sector. Household consumption has also been revived, aided by cuts in direct household taxes, strong employment growth and modest import price inflation. The unemployment rate has declined rapidly, leading to a pick-up in wage growth in some sectors. The economy is projected to continue expanding over the next two years, albeit at a more sustainable pace. The labour market will tighten further, with the unemployment rate projected to fall to around 5.5pc. GDP growth is expected to be around 2.5pc in 2019.

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