The latest Quarterly Economic Outlook from Ibec forecasts GDP growth of 3.7% in 2020, despite ongoing and emerging challenges to the global economy.
This Q1 2020 report shows the Irish economy has continued its strong growth trajectory, underpinned by recovering consumer sentiment and business confidence. Consumer spending, employment and investment are all growing rapidly, while household incomes are now increasing in every region.
This momentum in growth is being achieved despite external pressures in the global economy, with Brexit posing an ongoing challenge and the impact of the coronavirus outbreak being felt via global supply chain disruption and reduced demand over recent weeks. Sustaining our economic growth is therefore dependent on managing change in the external environment.
Featured figure / Ireland GDP Forecasts
Although it is still early in the year, all indicators suggest the Irish economy has continued its strong growth trajectory into the initial part of 2020. Monthly estimates by the CSO suggest a continuation of strong labour market trends. Employment in January rose by 3% on the same month in 2019. Consumer sentiment, which had fallen rapidly toward the end of 2019 on the back of Brexit fears, also rebounded in January. From a business perspective, the AIB PMIs for manufacturing and services reached 7-month and 9-month highs, respectively.
Taken together, these signals suggest that the story of growing incomes, employment, and demand is set to continue into 2020. But major threats to this growth, including a potential hard Brexit, will come into focus as the year progresses. Despite this ongoing uncertainty, we continue to have a fundamentally positive view of the Irish economic story. Clearing a pathway to sustain this growth by dealing with the domestic challenges of worsening congestion in crucial infrastructure and services will be the major challenge for the incoming government.
Featured figure / EU purchasing managers’ index
The European economy ended 2019 in a difficult place. Annual growth in Q4 stood at just over 1% compared to the same period in 2018. This represents the lowest rate of annual growth for the block since 2013 and was driven by a weakness in the economies of both France and Italy. In the year ahead, the outlook for the European economy will be driven by several factors. Not least of these will be the continuing threat of growing tariffs imposed on European goods by the US and the overall weakness in the global economy on the back of slowing growth in China.
From an Irish perspective, the continued strong economic performance here is even more impressive when compared with this backdrop. But the same risks of growing trade tensions, a global slowdown, and a potential hard Brexit will spell more moderate growth in our traded sectors in 2020.
Featured figure / Consumer Spending
Retailers enjoyed a positive Christmas period, which was broadly in line with Ibec expectations. The total value of Irish core retail sales (excluding cars and bars) increased by 3.2% compared with December 2018. This was lower than the 5.4% increase in the volume of sales over the period, evidence of ongoing discounting across retail sectors. For 2020 we continue to expect labour market trends, which have driven rising consumer incomes, to deliver robust growth in spending. One of the key features of the consumer economy for companies to watch in 2020 will be the reaction of households to the external environment.
In 2019, fears of Brexit drove falling consumer sentiment throughout the year. The Irish consumer continues to be extremely cautious, with rising savings rates and no clear sign of an uptick in short-term borrowing. If outside threats to the economy ease in 2020, we may get an improved sense for whether this cautious consumer behaviour is cyclical or a permanent feature of the post-crisis environment. On the other hand, the continued threat of a hard Brexit later in the year could see a return to a weakening of consumer sentiment.
Featured figure / Household net worth
The financial position of Irish households has recovered strongly in recent years, with the total net worth of Irish households at €780 billion, up from a low of €432 billion during the recession. The bulk of this increase is driven by growth in the value of housing assets, helped by households concurrently paying down debts. A limited number of new builds indicates that much of the increase in the value of housing assets held by households is caused by rising house prices rather than the acquisition of new houses.
Most liabilities held by Irish households (97%) are made up of long-term loans, which primarily represents mortgages. The total value of outstanding long-term loans to Irish households has fallen by €13bn since 2015, a 9% decrease. In a similar vein, the value of outstanding short-term loans to Irish households has halved in the last four years and the proportion of total liabilities made up of short-term loans has also halved, from 4% to 2%.