Ibec, the group that represents Irish business, today published its latest Quarterly Economic Outlook Q3 2018 (attached), which forecasts strong growth of 4.5% in 2019 following growth of 7.8% in 2018. The 2019 growth forecast, however, is based on the assumption that an agreement is reach on Brexit. If this does not happen there is a risk of severe disruption across almost all areas of the economy with knock-on downside risks for our forecasts. Already we are beginning to see company margins squeezed by the depreciation of sterling and softening confidence impacting on investment in the most Brexit exposed sectors. In the absence of a Brexit deal, the growing uncertainty will cause these trends to intensify during 2019.
Despite the positive overall economic backdrop, Ibec analysis suggests that during 2019 we will increasingly approach a late stage in the business cycle globally. At home we are already seeing signs of the type of competitiveness loss which eroded previous periods of sustainable growth. If this is left unchecked, it has the potential to slow growth over the coming years and leave Ireland very exposed in the event of ongoing global trade turbulence or a future global downturn.
Ibec's Head of Tax and Fiscal Policy, Gerard Brady, stated:
“The story in today’s report is a broadly a positive one, the economy is growing, trade remains robust – if uneven, and households are clearly benefitting through rising real incomes. Consumer spending is growing by almost 4% in volume terms and has the potential to grow further as household balance sheets normalise into 2019. We have been here before, however. Previous periods of rising living standards gave way to higher costs for businesses and households, a lack of focus on productivity and an eventual erosion of the basis for sustainable growth. Growing domestic costs, rising interest rates and oil prices, along with the depreciation of Sterling is now putting significant pressure on our businesses – particularly in indigenous sectors already exposed to the threat of Brexit. If we cannot avoid a renewal of our boomtime wage-cost spiral, we will crowd out our exporters and see inflation erode the benefits of wage growth. We cannot use a tight labour market, rising oil prices and future interest rate hikes as excuses for inaction on the things we can control - like investing wisely in skilled workers and controlling other areas of our cost base.
“Feedback from our members is that companies are increasingly having to look abroad to fill roles. Employment growth is strong and Ireland’s labour force participation and unemployment rates will converge on developed world norms in 2019. In addition, our working age population, before migration, is expected to grow by between 15,000 and 20,000 persons a year. The remainder of labour demand will have to be serviced from growing net migration and increased hours from existing part-time workers. Attracting workers will only be possible with a strong policy focus on quality of life issues – such as housing supply and affordability – where we lag our competitors.
“Finally, we must be wary of the impact global changes may have on our public finances over the coming years. Our analysis of Budget 2019 suggests that in the absence of unexpected corporate tax overruns in recent years we would still be running a Government deficit of €4.6 billion next year. This source of revenue may continue to be volatile during a period of large-scale change in global corporates. Global tax reform is still bedding in. If trends in this space were to change in the post-2020 period, as the OECD BEPS recommendations are implemented, the large current spending increases paid for by these funds will leave the Government finances very exposed.”
- Ibec Quarterly Economic Outlook Q3 2018.pdf - 1,233 Kbytes