Dublin recession increasing in likelihood, indicators suggest

The leading indicators for the Dublin economy hint that a recession is an increasingly realistic possibility, according to the latest Dublin Economic Monitor published by the four local authorities in the region.

According to data from MasterCard, Dublin retail spending fell in the first quarter as a distinct softness in consumer demand affected specific categories within the sector.

Cost-of-living pressures linked to soaring energy prices due to the war in Ukraine are likely to have been influential as spending in the capital ultimately fell 8.1 per cent quarter on quarter.

The single most significant reduction in expenditure was in department and clothing stores, where spending dropped by more than a quarter (-28.3 per cent).

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Dublin’s S&P Global Purchasing Managers’ Index shows that business activity in the capital’s private sector increased at a sharp and accelerated rate in the quarter as the fading of the Omicron wave of Covid-19 boosted growth.

Construction was to the fore with an index reading of 62.1, and drove an overall PMI reading of 60.1 (a reading above 50 signifies growth). Despite that, S&P Global warned of the potential for the Russian invasion of Ukraine to limit growth in the second quarter.

In the labour market unemployment edged up by 0.4 percentage points to 5.8 per cent, though total employment among the capital’s residents reached a new peak of more than 760,000 in the quarter.

The job market remained broadly stable in the first five months of the year, and a new indicator from the job-listings website Indeed shows vacancies in May were most common in the facilities and retail sectors.

Cleaners, sales assistants and security officers were in greatest demand in the month.

Activity in the residential property market continued to recover, with rising housing completions and transactions levels.

Prices continued to rise in Dublin in Q1, increasing by 0.4 per cent month on month and 12.4 per cent year on year in March to reach a new peak index reading — the highest since 2008.

Residential rents in Dublin declined for only the second time in six years in the last quarter of 2021. The average rent for a property in the capital fell 3.3 per cent quarter on quarter to stand at €1,804.

The Dublin hotel market roared back to life in the first four months of 2022. Occupancy rates in the sector, which had languished below 10 per cent during the worst of the pandemic, rose in each month to stand at 82.9 per cent in April.

This was the highest occupancy rate since summer 2019. Average daily rates also rose dramatically to reach the highest level since the series began in 2014.

Andrew Webb, chief economist with Grant Thornton, said: “While forecasters are not yet calling a recession, there is a growing number of clues in the data to suggest a recession is increasingly likely.

“Cost-of-living pressures are pushing consumer and business sentiment into more downbeat territory, reflected in MasterCard SpendingPulse data and a softening of new job listings.

“All eyes are now on consumers to see if downbeat sentiment turns to reduced spending, prompting an economic downturn.”