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Predicting Ireland’s economy in 2020

Thursday, 2nd January, 2020 9:41am

Following a strong 2019, EY has forecasted another positive year for Ireland with GDP growth expected to remain one of the strongest in Europe.

The outlook is slightly cooler than the two buoyant years Ireland has just had, though they say that this is not entirely unwelcome as the pressures of fast growth are beginning to become more visible.

The predictions from EY, an accounting and financial advisory firm, assume the avoidance of a no-deal Brexit in 2020.

Here are EY’s predictions:

• GDP will rise by 3.2 per cent

John Higgins, Managing Partner in Cork for EY said: “Strength in the domestic economy resulting from a combination of job growth, real wage growth and government spending is projected to compensate for weakening global conditions. GDP is expected to be above trend at 3.2 per cent in 2020. Modified domestic demand, which strips out the main distortions in Irish GDP, is forecast to grow at a similar rate (3.1 per cent). Ireland will, therefore, remain near the top of the European growth charts.”

Biggest forecast risk: A global slow-down

• Employment to rise by 1.7 per cent

Mr Higgins said: “Job growth is expected to remain robust in 2020 with 40,000 net jobs projected, a slight reduction on the 56,000 enjoyed in 2019 as tightening labour supply, rising wages and slower global growth take their toll.

“Consumer and government spending will boost domestic businesses and strong migration will allow firms to keep recruiting.”

Biggest forecast risk: Skills gap and housing shortages prevent firms getting the talent they need

• Wage growth at 3.5 per cent

Mr Higgins explained: “Wage growth has picked up over the last 18 months as labour supply tightens and skills gaps emerge in key sectors. The growth is also partly compositional with more hiring at the senior level, pushing up the overall average wage. Overall average wages are projected to slip back very slightly from their 2019 level to 3.5 per cent in 2020.”

Biggest forecast risk: Wage inflation accelerates as firms struggle to get the labour they need

• Consumer spending growth of 2.4 per cent

• Net migration of 40,000

• Inflation of 1.6 per cent

• House prices to increase by 3.2 per cent

Mr Higgins said: “House price growth has slowed markedly in the last 12 months. Unusually, this is in not in response to a weakening economy but partly a reflection of the lending rules that have placed a harder ceiling on borrowing. This has been a welcome outturn for the Irish economy overall, though it has not been helpful in accelerating the development of much needed additional housing supply. Our forecast is for prices to pick up slightly from the current growth rates, reflecting demand and affordability in the wider economy.”

Biggest forecast risk: Despite lending rules, increased cash investment trigger a rapid step up in prices.

• Construction inflation of seven per cent

• 24,000 housing completions

• Tax receipts of four per cent

Mr Higgins said: “Tax receipts have been very robust across all major categories.

“Though corporation tax increases have made the headlines, income tax and VAT have also grown strongly - reflecting the broad-based economic growth underway in Ireland.

“It remains hard to predict tax receipts as Ireland’s fortunes have considerable exposure to a very small number of firms, but the forecast for continued job growth and healthy wage increases mean a very healthy 4 per cent is our central forecast for 2020.”

Biggest forecast risk: Adverse global conditions impact the small group of firms that contribute a large proportion of corporation tax receipts.

• Government Balance at 0.1 per cent of GDP

• Unemployment rate of 4.6 per cent

 

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