EY’s Economic Eye Summer Forecast

Competitiveness concerns and Brexit set to slow, but not end, impressive economic growth

Economic growth across the island of Ireland is forecast to remain steady at 2.4% until the end of decade, with the Republic of Ireland set to benefit from 91,000 net new jobs by 2020, however the country’s resilience and competitiveness will continue to be tested in the face of global and economic political developments, according to the latest EY Economic Eye Summer Forecast published today. GDP growth in the Republic of Ireland is expected to reach 2.6% in 2017, with an average growth rate of 2.6% per annum until 2020, bolstered by continued consumer spending.

According to Professor Neil Gibson, Economic Advisor to EY Economic Eye, with little clarity on Brexit, political uncertainty in Northern Ireland and Irish GDP data being affected by a range of factors, all-island forecasting has never been more challenging:

Six months on from our last forecast, there is no more clarity on exactly what shape Brexit will take, and in the absence of information on trade deals, customs and border plans, and migration policy, caution must be placed on any forecasts. The exit process for the UK is likely to be fairly bumpy, and although it makes clear economic sense to arrive at a sensible trade arrangement, that cannot be assumed. That said, the Republic of Ireland economy is enjoying a sustained period of job growth, and a healthy balance between exports, consumer and government spending suggests that the economy is well placed to meet these challenges” he said.

Brexit risk level varies greatly due to regional differences across the island
Putting aside the uncertainty created by Brexit and recent European elections, EY Economic Eye finds that the all island economy is expected to grow, with total employment across the island of Ireland set to increase by 29,000 jobs in 2017. The Republic of Ireland will however fair better than Northern Ireland, with almost 91,000 jobs forecast to be created by 2020.

Improving domestic conditions are supporting many of the sectors hardest hit during the recession towards recovery, with wholesale and retail to grow by 19,400 jobs and construction to be boosted by 18,500 jobs according to the forecast. Continued strength in the professional, scientific and technical sector is set to be supported by an upturn in public sector employment as government spending levels improve, with public administration and defence; and health and social work; each projected to grow by more than 10,000 jobs.

Meanwhile agriculture, which has been well documented as the most exposed sector to Brexit, is forecast to lose 12,800 jobs by 2020. With agriculture and industrial employment making up approximately 20% of employment in 19 of Ireland’s 26 counties and four of Northern Ireland’s 11 councils, both jurisdictions are likely to be significantly impacted if a free trade agreement cannot be reached, or some form of unique status designation for the sector is not achieved.

The report also states that inflation and wages data will be critical to watch in the coming months. While jobs growth in the Republic of Ireland will outperform Northern Ireland and mainland UK, the country will not be immune to its own set of challenges. Increasing demands for public services, skills and talent shortages in the private sector, the rising cost of living, and housing shortages in Dublin will all place clear upward pressure on wages and cause them to rise by an average of 3% per annum by 2020.

Furthermore, EY Economic Eye finds that within certain sectors such as agriculture, agri food and professional services, jobs growth is clustered around an east coast corridor centred on Dublin and Belfast – raising new questions around capacity constraints.

Professor Neil Gibson commented: “If pay rates cannot keep pace with inflation, which is a possibility in the Republic of Ireland and looks increasingly likely in Northern Ireland, then the economic outcome could be worse than forecast. And with tensions rising over wage levels, particularly in public services, the likely desire to remain relatively prudent in the Republic of Ireland and the austerity committed to in the North could lead to a rise in social tensions at an already challenging time for the island economy.”

“It is clear that politically and economically there is a strong desire both in the Republic of Ireland and Northern Ireland to spread employment growth more equally, however the differential impact of Brexit, and a very strong urban attraction for many investors, makes this a challenging, if laudable, policy goal. The need to develop discreet specialisms will be required, with an integrated policy approach encompassing education, infrastructure and business support,” he added.

The island’s economies diverge in the face of Brexit
The latest EY Economic Eye draws attention to the divergence across, and within, the economies north and south, with the Republic of Ireland and Northern Ireland set to face very different ‘Brexit journeys’ in the coming months and years.

From the perspective of the Republic of Ireland, as the UK negotiates its exit from the EU, maintaining and improving competitiveness will be crucial to the country’s continued economic success. In the wake of the appointment of new Taoiseach Leo Varadkar, EY Economic Eye reports that there is a clear need to focus on structural factors such as innovation capacity, the quality of infrastructure, costs of doing business and productivity.

Country Managing Partner for EY Ireland Mike McKerr commented: “Ireland’s well-earned reputation for resilience and adaptability will be severely tested if a favourable trade deal is not reached. However, against this backdrop of uncertainty, factors which are in our control are effective policy making and strategic business decisions. As such, Government, the EU and public private partnerships must not only continue to work together to scenario plan, but collaborate to enhance Ireland’s competitiveness. Brexit cannot be allowed to distract from the long list of “need done” items which will allow Ireland to continue to compete as a world leader – whether it be in terms of our infrastructure, our attractiveness as a destination for top talent, or our reputation as a hub for digital and innovation.”

Article Published: 27/06/2017