Ibec predicts slowdown in growth and warns on Brexit

Business lobby group Ibec is forecasting that growth in the economy will slow to 4.5 per cent next year from 7.8 per cent in 2018.

The group, in its Quarterly Economic Outlook for the third quarter, said the forecast was based on the assumption that an agreement is reach on Brexit.

“If this does not happen there is a risk of severe disruption across almost all areas of the economy with knock-on downside risks for our forecasts,” it said.

“Already we are beginning to see company margins squeezed by the depreciation of sterling and softening confidence impacting on investment in the most Brexit exposed sectors.”

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In the absence of a Brexit deal, the growing uncertainty will cause these trends to “intensify” during 2019.

Despite the positive overall economic backdrop, Ibec said there were signs of the type of competitiveness loss which eroded previous periods of sustainable growth.

“If this is left unchecked, it has the potential to slow growth over the coming years and leave Ireland very exposed in the event of ongoing global trade turbulence or a future global downturn,” the group said.

Ibec head of tax and fiscal policy Gerard Brady said that despite the warnings, the story from the quarterly bulletin was "broadly a positive one".

“The economy is growing, trade remains robust if uneven, and households are clearly benefitting through rising real incomes,” he said.

“Consumer spending is growing by almost 4 per cent in volume terms and has the potential to grow further as household balance sheets normalise into 2019. We have been here before, however.

“Previous periods of rising living standards gave way to higher costs for businesses and households, a lack of focus on productivity and an eventual erosion of the basis for sustainable growth.

“Growing domestic costs, rising interest rates and oil prices, along with the depreciation of Sterling is now putting significant pressure on our businesses – particularly in indigenous sectors already exposed to the threat of Brexit.”

Mr Brady said the State ought to invest in skilled workers as businesses were increasingly looking abroad to fill key roles.

“If we cannot avoid a renewal of our boomtime wage-cost spiral, we will crowd out our exporters and see inflation erode the benefits of wage growth,” he said.

“We cannot use a tight labour market, rising oil prices and future interest rate hikes as excuses for inaction on the things we can control - like investing wisely in skilled workers and controlling other areas of our cost base.

“Feedback from our members is that companies are increasingly having to look abroad to fill roles. Employment growth is strong and Ireland’s labour force participation and unemployment rates will converge on developed world norms in 2019.

“In addition, our working age population, before migration, is expected to grow by between 15,000 and 20,000 persons a year.

“The remainder of labour demand will have to be serviced from growing net migration and increased hours from existing part-time workers.

“Attracting workers will only be possible with a strong policy focus on quality of life issues – such as housing supply and affordability – where we lag our competitors.”

Finally, Mr Brady said the Government “must be wary” of the impact global changes may have on public finances over the coming years.

“Our analysis of Budget 2019 suggests that in the absence of unexpected corporate tax overruns in recent years we would still be running a Government deficit of €4.6 billion next year.

“This source of revenue may continue to be volatile during a period of large-scale change in global corporates. Global tax reform is still bedding in.

“If trends in this space were to change in the post-2020 period, as the OECD BEPS recommendations are implemented, the large current spending increases paid for by these funds will leave the Government finances very exposed.”