The Central Bank sees Irish employment continuing to grow from current record levels over the next two years, even as companies struggle with soaring costs and corporate insolvency experts predict a rise in companies collapsing as they struggle against inflation.
The strong recovery in the labour market following the worst of the pandemic – with a record 2.55 million in employment as of the middle of this year, according to Central Statistics Office data – is likely to lead to ongoing wage growth in the coming years, the Central Bank forecasts in its latest quarterly bulletin.
The report sees employment growing by 1.1 per cent next year and 1.7 per cent in 2024. It forecasts that growth in compensation per employee will rise from 3.8 per cent this year to 5.8 per cent in 2023, before easing back to 4.9 per cent the following year.
However, the Central Bank cut its growth projection for modified domestic demand – a key gauge of the domestic economy – in the bulletin almost by half to 2.3 per cent as it hiked its inflation outlook as financial markets are now pricing in an extended period of high gas prices. It also lowered its 2024 projection marginally, to 3.3 per cent.
“The imbalance we see between the demand for labour and supply is quite acute at the moment,” said Robert Kelly, the Central Bank’s acting director of economics and statistics.
Mr Kelly noted that while there were 40 people seeking work for every vacancy in the market in 2011, the ratio had fallen to six in 2019, before Covid-19 struck, and currently stands at three.
“Right now, from talking to firms and building soft information, it seems the direction of travel is they will try to retain the employees they have, given the shortage of labour out there at the moment,” he said, when asked by reporters on why the Central Bank was not forecasting a decline in jobs as companies battle against rising costs.
However, he said that if the economy performed worse than currently expected, resulting in greater pressure on companies, the labour market could start to behave “more like a true recession”.
A widely predicted global surge in business collapses at the outset of the Covid-19 pandemic two years ago was averted by Government aid for companies and households during the worst of the crisis.
However, Irish corporate insolvencies rose about 33 per cent in the first three-quarters of this year to 378, according to Deloitte, as supports were phased out and businesses grappled with soaring inflation. While the trend of companies going under remains below that seen in 2018 and 2019, before the pandemic, insolvencies are widely expected to continue to rise in the coming 12 months.
There were 767 corporate insolvencies in 2018 and 568 in 2019, according to Deloitte figures.
The Central Bank report highlighted that the economic outlook “remains highly uncertain, with the baseline forecast predicated on current market expectations for energy prices, which have been volatile”.