Opportunities Ripe as Irish Economy Looks Strong for 2018

Opportunities Ripe as Irish Economy Looks Strong for 2018

Opportunities Ripe as Irish Economy Looks Strong for 2018

The past number of years have seen a strong recovery by the Irish economy that has surpassed all expectations. This has been led by robust export growth but there has also been a strong rebound in domestic demand, including business investment, construction and consumer spending.


The latest National Accounts data show that the economy grew by 5.5% year-on-year in the first half of 2017. However, owing to base effects, annual GDP growth is likely to slow in the second half of the year – GDP rose by 2.2% and 5.8% on a quarterly basis in the final two quarters of 2016, which is unlikely to be repeated this year.


Exports have maintained their strong uptrend in 2017, with service exports rising by 15% in the first half of the year. However, there has been a significant slowdown in the rate of growth in domestic demand. Growth in core domestic spending—consumer and government spending plus core investment (i.e. excluding aircraft and intangibles) – slowed to 2.7% in the opening half of 2017 from an average rate of 4.8% over the previous three years.


Construction has continued to grow strongly, rising by over 20% in the first half of 2017. However, core business investment has fallen back somewhat, having doubled in the previous four years. After the deep recession, there may have been an element of ‘catch-up’ to the strong growth in business investment in recent years, which is proving difficult to sustain in 2017.


Meanwhile, consumer spending rose by 1.75% in the opening half of the year, well below the strong growth rates of 4.2% and 3.3% seen in 2015 and 2016, respectively. The growth in car sales has slowed appreciably this year as they have returned to more normal levels.


Labour market data have remained strong this year, with employment up by 3% in the first half. Meanwhile, the unemployment rate had declined to 6.1% by September from 6.9% at end 2016.


Overall, despite the weakening of growth in domestic demand, the economy has continued to perform well this year. The indicators available for the second half of the year have remained strong. Thus, GDP growth is now being widely forecast at around 4.5-5.0% for 2017, only slightly below the growth rate of 5.1% recorded in 2016.

Most forecasters see GDP growth slowing to around 3.5% in 2018, with uncertainty around Brexit, a slowdown in UK economic activity and the rise of the euro, especially against sterling, all seen as headwinds.

However, Irish economic growth has tended to surprise on the upside in recent years. The strengthening of global activity, continuing very low interest rate environment as well as rising real incomes and employment point to the scope for Irish growth to surprise on the upside again next year.

Indeed, if agreement can be reached on a soft Brexit for the UK, it would lessen the impact of one of the main risks facing the Irish economy over the next couple of years.

Oliver Mangan, Chief Economist, AIB

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