GDP Growth Revised Downwards Based on Gloomier Global Outlook But Labour Market Continues to Beat the Odds
EY has revised downwards its economic forecast for 2020, from 3.3% to 3.0% on the back of weaker global outlook and following remarkable GDP growth of 8.2% in 2018. Growth in 2019 is projected at 3.7%, down from 4.1% projected in June. This moderate downward revision, based on the assumption of an orderly Brexit, is contrary to the continued strength of the labour market which remains in stark contrast to the downbeat backdrop. EY’s Economic Eye forecast, which outlines the latest projections for the all-island economy, also finds that in the event of a no-deal Brexit, 2020 GDP would dip to 1.3%.
The all-island report also finds that Northern Ireland’s economic growth rate for 2020 will be lower than the Republic of Ireland at 1.1%, and in 2021 will increase to 1.6%. The region has now slipped behind the UK average growth rate after a relatively strong 2018, with a no-deal Brexit projected to be sufficient to push Northern Ireland into recession.
Commenting on the figures, and gloomier global economic outlook, Professor Neil Gibson, Chief Economist for EY Ireland, said: “The external economic climate is as challenging as it has been for a decade. Despite strong domestic tailwinds, the dual threat of trade wars and Brexit have the potential to derail Ireland’s rapid growth. Estimates of a no-deal impact vary considerably, but they all suggest there will be a cost in the form of disruption across the island. Regardless of the overall macro impact, the local and firm-specific effects could be devastating for some, with no-deal job losses likely to have a very particular sub-regional pattern. There is no doubt that the resilience and adaptability of businesses will be tested, as will the resolve of Government, but the remarkable level of growth and job creation over the last five years is no small feat and places Ireland on a solid footing.”
Darker Brexit cloud looms large for the all-island economy
In the event of a no-deal Brexit, EY Economic Eye finds that though Ireland would avoid a recession, it would see 2019 GDP dip from 3.7% to 3.2%, and would then slow further to 1.3% in 2020 before growing to 2.1% in 2021. While in Northern Ireland, economic growth would fall from 1.0% to 0.5% in 2019, dropping to a worrying -0.6% in 2020, only to moderate slightly to 1.0% in 2021. EY also predicts that a no-deal would result in 60,300 fewer jobs across the island by 2022 (41,500 in ROI and 18,800 in NI).
Simon MacAllister, Partner and Brexit Lead for EY Ireland, added: “Our latest outlook is slightly weaker, and it is clear that even assuming a Brexit deal, trade wars and an unsteady global backdrop are beginning to take their toll on Ireland’s small, open economy. Warning signs are flashing in our economic data but also in financial markets and many business sentiment surveys. With recent surveys indicating that there are low levels of Brexit preparedness amongst Irish firms, businesses need to be considering now what a further extension or a no-deal could mean for them, and what their key actions will be.”
Job growth remains strong but projected to slow as wage inflation remains
EY Economic Eye finds that the more challenging global backdrop is at odds with what people are feeling in Ireland, with positive labour market growth, rising real incomes and increases in government spending. Whilst job growth in Ireland has also been revised downwards from 2.8% in 2019 to 2.2% in EY’s latest forecast, the firm’s predictions for 2020 and 2021 remain the same at 1.8% and 1.6% respectively. This demonstrates that the pace of growth is showing tentative signs of slowing, however it remains impressive, with all-island employment at its highest recorded level (3.2 million).
Neil Gibson commented: “Employers continue to cite accessing talent as their number on priority, above even Brexit, so a cooling of the job creation rate may be welcome from an overall economic point of view. The pace of labour market growth in Ireland could not have continued – public services, housing and infrastructure would not have been able to cope. However, job creation attracts people, and Ireland can expect migration numbers to rise again in 2019, adding to the pool of labour, increasing domestic demand, and further adding to the pressure on services.”
The report finds that in the event of a difficult Brexit, there will be jobs lost, but these are unlikely to be in the locations or with the skills profiles that are in demand from employers for whom Brexit is not a major consideration. As a result, recent upward pressure on pay levels is expected to continue for businesses, with wage inflation in Ireland predicted to be 3.6% in 2019, and the UK enjoying a similar level at 3.5%.
