Irish economy fuelled by ‘Phoenix miracle’ - Central Bank

Employer wage costs forecast to rise by nearly 3% in next two years

The Irish economic recovery is a “Phoenix miracle”, whereby strong growth is driven by growing income and business investment without increasing debt levels, the Central Bank’s chief economist said on Thursday.

Speaking after the launch of the Central Bank’s latest quarterly bulletin, Gabriel Fagan pointed to literature on “Phoenix miracles” which shows “the key feature is a strong recovery in activity, in employment and in outlook but very weak movement in credit and debt”.

“I think the Irish case fits the bill precisely,” he said, while also noting that the Republic is now a “high-wage, high-skills economy”.

The Central Bank has raised its forecast for Irish employer wage costs for the next two years as employment grows at a faster rate than previously expected, even as the State faces risks posed by Brexit and potential changes to international tax policies.


Wage cost inflation is set to reach 2.8 per cent per annum for the three years to 2018, the Central Bank said in the bulletin, published on Thursday. It had previously forecast growth of between 2.2 and 2.3 per cent for each of the three years.

Actual wage growth across the economy is running at about 1 per cent, the Central Bank said.

With employment levels outside the construction industry now at record levels, the Central Bank forecasts that the jobless rate will fall to 5.6 per cent by the end of 2018, compared to 6.1 per cent projected in its last bulletin in January. The rate stood at 6.4 per cent in March, down from a crisis-time peak of 15.1 per cent in 2012.

Central Bank figures show that of 203,000 jobs created since early 2012, more than half have been taken up by candidates with a third-level qualification. Those with a primary education meanwhile account for just 18,000 of the total.

House prices

Mr Fagan acknowledged that it is “hard to see” the rate of house price growth, shown this week by a survey to stand at 9 per cent for the first quarter, diminishing in the near term as employment and salaries increase and supply runs below estimated needs.

The Central Bank has hiked its 2017 forecast of underlying domestic demand, covering consumers and underlying investment, to 4 per cent from “over 3 per cent” previously. The most reliable gauge of the health of the open Irish economy is expected to expand by 3.5 per cent next year, compared to the bank’s previous 3 per cent forecast.

While the UK economy has confounded many economists by largely holding up since the Brexit referendum last June, Irish exporters have borne the brunt of a slump in the value of sterling against the euro. The Central Bank reiterated that the UK’s exit from the EU will have a negative impact on the Republic, with the agri-food, clothing, footwear and tourism sectors also facing the threat of new barriers to trade.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times