Ibec, the group that represents Irish business, today published its Q4 Quarterly Economic Outlook, which revised down its 2016 GDP growth forecast to 3.7% from 3.9%, and the 2017 forecast to 2.8% from 3.2%. The group said increased global and European economic and political uncertainties brought into sharp focus the need for sensible economic and labour market policies at home. Despite the downward adjustment, jobs growth is set to continue, with employment levels expected to return to 2006 peek levels by the end of next year, with employment growth approaching 2.4% for the full year in 2017.
Ibec Senior Economist Gerard Brady said: "To date, Ireland's impressive growth has been spurred on by relatively strong US and UK performances, a benign global backdrop, low interest rates, falling oil prices and favourable exchange rates. But the world is becoming more unstable, politically and economically. We can no longer rely on these external factors. Making the right economic choices at home will play an increasing and pivotal role in how the economy performs in the coming months and years. Decisions that would add to business costs or reduce the ability of Irish companies to compete internationally must be avoided. Instead we need to make Ireland an even more attractive place in which to invest and do business."
Key points from Ibec's quarterly assessment of the economy include:
- Growth: 2016 and 2017 GDP forecasts were revised down to 3.7% and 2.8% respectively, an almost 1 percentage point fall on the Q1 growth figures for this year.
- Employment: Strong domestic recovery and continued FDI growth mean we expect employment growth of 2.9% this year and 2.4% next year. Eight of 14 sectors of the economy have surpassed their 2007 employment peaks. Only in retail (31,900), industry (39,700) and construction (134,000) is employment significantly below its pre-crisis levels.
- Domestic economy: Consumer spending will grow by 3.7% in 2016 and 3.3% in 2017, with consumer fundamentals remaining very strong. The population is growing quickly, inflation is low and the majority of firms are expected to give pay increases next year.
- Exchange rate: Recent gains by sterling versus the euro are likely to be reversed once the UK government triggers Article 50 early next year. Over the longer term we expect that fundamental weakness in the UK economy will mean a level of euro/sterling above £0.90.
Brexit: “The impact of sterling's collapse on indigenous exporters is a massive worry. Output in food manufacturing, our largest indigenous export sector, fell by 2% annually in the first three quarters of the year and turnover was down by over 2.8%. The pace of the deterioration has accelerated since the Brexit result in June, with output down 5.6% in Q3. These figures point to turnover loss of almost €700 million in the food industry in 2016. This has major implications for rural areas. About 10% of turnover in the sector is spent on wages and salaries and 40% on intermediate purchases from the primary agri-sector," said Mr Brady.
Global trade: On increased threats to Ireland's globalised business model, Mr Brady said: "The last four years have been the weakest for global trade since the onset of the second oil crisis in 1979. Part of this is due to weak investment globally, but other threats are increasing, including a slowdown in trade liberalisation and the rise of protectionism. A moderation or reversal of globalisation on any significant scale would be more damaging to Irish interests in the long-term than any other single event. Despite difficult challenges in recent years, Ireland’s model of a small, business friendly and open economy within Europe has succeeded, with new investment and job creation in highly globalised industries. It is vital that Ireland and Irish business clearly articulates our story as a positive example of the benefits of globalisation."
Investment: "With Ireland's debt to GDP ratio rapidly falling towards 70%, it is vital we pursue a much more ambitious investment programme. A much greater focus is needed on public investment in infrastructure, education and R&D," concluded Mr Brady.
- Ibec Q4 Outlook.pdf - 1,208 Kbytes