Ibec, the group that represents Irish business, today published its latest Quarterly Economic Outlook Q1 2018 (attached), which forecasts growth of 5.6% this year and a buoyant consumer economy growing by 2.6% in volume terms. All indicators now point to growth clearly benefitting households through improving wages and incomes. In the labour market, 2018 will see employment reach record levels with over 2.2 million people at work and the economy approaching full employment. In addition, Irish workers are experiencing the quickest real wage growth in Europe. As a result, total household purchasing power, excluding borrowing, has never been greater in the history of the State.
While this news is very positive, Ibec has also warned that threats to our competitiveness are resurfacing. Demand has recovered but many domestic business costs are also surging. The major question facing the economy over the coming years will continue to be our ability to sustain economic growth without experiencing significant competitiveness erosion. As the economy reaches capacity, more co-ordinated action will be needed to make sure we do not repeat the mistakes of the past.
Ibec's Head of Tax and Fiscal Policy, Gerard Brady, stated:
“The story in today’s report is a positive one, the economy is growing, trade remains robust despite Brexit, and households are clearly benefitting through incomes which are increasing at the fastest rate in Europe. Our view that the economy is moving into a new ‘post-recovery’ phase is supported by all these factors. It is important, however, that we do not become complacent. Previous periods of strong growth were undermined by a rising cost base dampening our exports and increasing challenges to quality of life.
“There is a particular threat from rising costs for our indigenous sectors which are already dealing with the uncertainty of Brexit. It is worth remembering that during a period of rapid global growth during the 2000s, the exports of our indigenous sectors grew at a quarter the pace, and were a quarter as responsive to global growth, as they have been since 2010. That improvement in competitiveness was hard won. Our analysis today shows, however, that the price of Irish food exports going abroad has been badly affected by the sterling exchange rate shock and is back to levels last witnessed in 2009. Feedback from members suggests this price pressure is being absorbed largely by margin erosion. That cannot last indefinitely.
“It is important we focus on the competitiveness factors we can control at home. Despite improvements over recent years, Ireland’s economy remains characterised by the National Competitiveness Council as a ‘relatively high-cost location’. As a small open economy, we remain extremely vulnerable to further external price shocks through exchange rates, interest rate hikes or rising energy prices. These have provided a major boost to our cost competitiveness in recent years but continuing tailwinds from these sources are far from guaranteed.
“For some time now, Ibec has identified a lack of investment in the economy as a major constraint to improving quality of life and sustaining the new phase of economic expansion which is currently underway. The launch of Project Ireland 2040 in February is a welcome development in this context. The 10-year investment plan will see capital spending exceed 4% of economic output in line with Ibec’s assessment of the country’s long-term infrastructure need. The next step, and one on which the Irish State has a poor record, will be to expedite efficient project delivery and planning while delivering value for money. This will be increasingly difficult if cost issues throughout the economy are not addressed.”
- Ibec Q1 Economic Outlook 2018.pdf - 1,213 Kbytes