Economic Growth Set to Continue in 2020 But Significant Risks on the Horizon
The Irish economy looks set to perform robustly in 2019 with the headline GDP rate forecast to increase by 4.9 per cent, according to the Quarterly Economic Commentary for Autumn 2019 by the ESRI. In 2020 the economy is expected to grow by 3.1 per cent. These forecasts are subject to the technical assumption that the UK’s continued membership in the EU will effectively remain in place after October 2019.
However, there are a number of considerations concerning the growth outlook to bear in mind. Firstly, certain internal transactions of a few multi-national firms are once again likely to cause a divergence between the growth in headline output and the growth in underlying output in the economy for the present year. While headline growth figures are strong, data for consumption and modified investment would suggest that the rate of output growth has actually slowed somewhat during the year.
Secondly, the risks from the international environment are increasing due to continued uncertainty over Brexit and the growing evidence of a slowdown amongst some of Ireland’s most important trading partners. If a no-deal Brexit occurs in late 2019, it is not inconceivable that the Irish economy could contract in 2020. These concerns make the choice of the appropriate policy mix for Budget 2020 particularly complex. It may be the case that a supplementary Budget is required early in the New Year if external conditions change substantially.
The ESRI is also revising down its housing completions forecast for 2019 from 23,500 units in the previous Commentary to 21,000 units. This reflects a moderation in the rate of housing supply observed in the market, with house price inflation also slowing down. While increased pressures concerning affordability are evident in the Irish housing market, it would not be prudent at this stage to relax the macro-prudential regulations overseen by the Central Bank of Ireland. It is imperative that domestic policymakers prevent the possibility of another house price-mortgage credit spiral that could emerge if credit was made more freely available.
