Economy being held back by ‘congestion’ in transport and housing, says Ibec

The growth potential of the Irish economy is being undermined by a shortage of labour linked to congestion in transport, housing and childcare, Ibec has warned.

In it latest quarterly assessment the employers’ group said that while the economy has experienced several years of rapid growth, “significant capacity constraints” were now impacting on companies’ enlargement plans and limiting the potential for economic expansion.

“As a result, we are likely to see more moderate economic growth in the coming years,” it said.

Ibec is forecasting growth of 3.1 per cent next year, down from 8.8 per cent last year and 9.5 per cent in 2017.

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“The impact of growing congestion in areas like transport, housing and childcare are making it more difficult to attract and retain workers. Feedback from members suggest these constraints are now having a binding effect on growth.”

In its report Ibec noted average hourly earnings are now growing at an annual rate of 3.8 per cent, reflecting increasing pressure on wages caused by rising employment and the tight labour market.

Ibec said its growth forecast for next year was also contingent on the revised Brexit withdrawal agreement being ratified before the end of January 2020.

“No matter what the outcome, uncertainty is with us to stay,” it said. “Future political developments will inevitably shape any trade deal, but it currently points to a far looser alignment than is currently the case. This brings with it the risk of potentially significant trade and regulatory barriers.”

Despite a Brexit-related dip in consumer confidence here, retail sales grew by 3 per cent in value terms in the first nine months of 2019 as strong wage and employment growth translated into consumer demand, Ibec said.

However, it said rising trade tensions, most notably between the US and China, and an uncertain global economic environment generally were weighing on business decision-makers.

Strong growth

Ibec's chief economist Gerard Brady said the Irish economy had now recorded several years of strong sustainable growth.

"Record levels of business investment, rising wages, moderate inflation and a rapid improvement in household balance sheets have underpinned this growth," he said, noting no other developed country has seen an increase in real household incomes close to the 25 per cent increase experienced in Ireland over the past five years.

“While the outlook is still positive, the pace of growth is likely to be more moderate in the coming years. Feedback from our members indicates businesses are increasingly finding that the tight labour market and under-provision of vital infrastructure is materially impacting on companies’ expansion plans.

“The failure to match this rapid growth in the number of people at work with a requisite increase in public infrastructure has given rise to growing congestion and problems in areas like transport, housing and childcare.”