How you see Ireland’s economic prospects may depend on whether your glass is half full or half empty in the post-Paddy’s day haze. There’s plenty to be bullish about, but warning signs have begun to flash in recent months as we brace for Brexit and a global slowdown.
First, the good news:
- The latest CSO numbers put GDP growth for 2018 at 6.7%, faster than China, and enough to make Ireland the fastest growing EU country for the fifth year running.
- Nearly 1,000 jobs a week were added during 2018 to take the total number in work close to 2.3 million for the first time, while the number unemployed fell to its lowest level in a decade.
- Workers are starting to feel it in their back pockets as the annual rate of growth in hourly earnings reached 3.8% in the final three months of 2018, the fastest since early 2009.
- At the same time, consumer prices continue to increase at an annual rate of less than 1%, the lowest rate in the EU, so that higher incomes aren’t eaten up by higher cost goods and services.
In many ways, the Irish economy looks to be in ‘goldilocks’ territory: not too cold, but still not too hot. Moreover, the number of people outside the labour force that could look for work again in the right conditions is still over 100,000, suggesting it still has room to run if factors beyond our control don’t get in the way.
But, some indicators have been flashing orange in recent months:
- The number of jobs being created slowed significantly from about 2,000 per week in the last three months of 2017 to about 640 per week in the same period last year.
- The long-term trend in falling unemployment rates ended in August 2018, since when it has hovered around 5.6%.
- House prices fell for three months in a row through January 2019, the first such hat-trick since prices bottomed out in early 2013.
- In January 2018, consumer confidence hit its highest level since early 2001, but has since dropped like a stone, and last month hit its lowest level since 2014.
None of this is anything to panic about yet. A slowdown in job growth and house prices was probably inevitable after years of break-neck growth. On the face of it, it is hard to explain why consumer confidence has fallen through the floor just as real wage growth picked up strongly. But, one only needs to glance across the Irish Sea to see why people may fear the worst. Rising fears of a devastating hard Brexit towards the end of this month could help explain falls in both consumer confidence and house prices, with the latter reinforcing the former as homeowners feel less flush.
This week is the latest in a series of seemingly momentous weeks in the Brexit soap opera. Only a fool would predict with any confidence how it will all end. It is always darkest before dawn, as the proverb goes, and it is the way of high-stakes negotiations to go to the wire. That the current U.K. government stumbles into a nasty accident can’t be ruled out, but good sense must surely prevail at the last minute.
Agreement on a soft Brexit with a lengthy transition period, whether this month or later, would at least remove some uncertainty for Ireland and take the worst-case scenario off the table. This alone could give Irish consumer confidence a shot in the arm and help stabilize house prices. Businesses in the most Brexit-exposed sectors would be able to breathe a sigh of relief, and take another look at hiring and investment plans.
Brexit isn’t the only external risk to the Irish economy, but it is certainly the biggest. The global economy is also slowing. The U.S. is the most important export destination for Irish goods, and its economy is decelerating with fears rising of an outright recession in the next 18 months. The Eurozone economy is back at crawl speed, with a few of its larger economies in or close to recession. China is becoming an increasingly important export destination: it recorded its weakest year of economic growth in three decades in 2018 and is expected to slow further.
For an economy as open as Ireland’s, it is never good news when economic growth is slowing in your trade partners. But, so long as they remain in ‘soft landing’ territory, and a ‘soft Brexit’ is eventually agreed, our glass should remain half full.