Ibec says economic growth will moderate this year to 4%

Business group expects headline growth to fall from 6.7% in 2018 to 2.7% in 2020, while consumer spending growth will also decline

Ibec says the biggest challenge to economic growth  is capacity constraints in the labour market.  Photograph: Nick Bradshaw

Ibec says the biggest challenge to economic growth is capacity constraints in the labour market. Photograph: Nick Bradshaw

 

The State’s largest business lobby group expects growth in the Republic’s economy to moderate to 4 per cent this year as the global economic cycle matures.

In its economic outlook Ibec says headline growth will fall from the 6.7 per cent recorded in 2018 to 2.7 per cent in 2020, while consumer spending growth will also decline. Inflation, meanwhile, is expected to rise to 1 per cent this year (from 0.5 per cent in 2018) and 1.3 per cent in 2020.

Ibec’s assumptions relating to headline growth assume that a Brexit deal is reached. The lobby group notes that if there is a no-deal exit, growth will be “half what it would have been” resulting from negative movements in sterling, investment and trade disruptions.

“The Irish economy is in a sweet spot, with growth in employment and wages both hitting close to 3 per cent in 2018,” says Gerard Brady, Ibec’s head of tax and fiscal policy.

“Household incomes are growing by 6 per cent and disposable income per person is now back above its peak levels for the first time. No other economy in western Europe had greater momentum coming into 2019, but this pace of growth will not last indefinitely.”

Mr Brady notes that while the additional six months to manage the Brexit process is welcome, it has left business to manage the rolling and costly uncertainty.

And Brexit aside, he says that there are signs of a slowdown in other key trading partners, with Chinese growth slowing and US financial markets showing signs of strain.

Labour market

Additionally, the economy will have to contend with domestic constraints in the coming year. The biggest challenge, says Ibec, is capacity constraints in the labour market.

“Our expectation is that growing labour shortages will cause employment growth to slow in 2019 as we near full employment” and companies “struggle to fill vacancies”, says Mr Brady.

Given that the Republic’s prime age participation rate – of workers between 25 and 54 – has never been higher, he adds that “very few additional ‘easy to reach’ workers” are likely to join the domestic labour market.

“However, increased participation among older cohorts could alleviate some of these pressures over the coming years.”

Ibec’s expectation of economic growth at 4 per cent is similar to other institutions, with the Economic and Social Research Institute forecasting growth of 3.8 per cent, while Davy expects growth of 5 per cent.

The Central Bank of Ireland, meanwhile, expects growth of 4.2 per cent, while the OECD expects 4 per cent growth.