EY’s latest Economic Eye Winter forecast report [pdf] covering both Irish jurisdictions and the UK, has upgraded gross domestic product (GDP) for the Republic of Ireland (ROI) from 2.0% in 2014 and 2.4% in 2015 to 4.8% and 3.3% respectively. The Big 4 accounting firm that used to be known as Ernst & Young says the upgrade caps a turnaround in fortunes marked by broad-based labour recovery and significant improvements in exports and consumer spending.
Underlying growth for the Republic of Ireland is likely to be weaker than the published data suggests, however, "due to measurement technicalities." The rebound must also be seen in the context of the deep, prolonged recession from which the island of Ireland and its citizens are still emerging. Nonetheless, the recoveries in both parts of the island means that economic growth between 2012 and 2014 has been faster than all other Eurozone countries, outstripping the growth of all G7 countries, including the US.
'Measurement technicalities' are covered here:
The idiot/ eejit's guide to distorted Irish national economic data
43% of rise in H1 2014 GDP from manufacturing overseas - Irish Fiscal Council
Irish Economy 2014: Tourism activities account for half the jobs added since Q1 2011
Despite current strong sentiment, domestic and global risks abound
Professor Neil Gibson, economic advisor to EY said:“Whilst Ireland is leading the Eurozone growth tables this should not allow any complacency to creep into policy making or business planning. A number of headwinds are likely to moderate growth from the 2014 levels and many businesses and individuals are yet to feel any real sense of recovery.”
The report says that the majority of the data presents a positive picture for 2014 with strong export and investment growth allied to increased consumer spending and a rise in full-time employment. The continued improvement in the Republic of Ireland’s international reputation reflects the Government’s return to bond markets and successful completion of the bailout programme, while upgrades to ROI’s credit ratings from BBB+ in early 2012 to A- have resulted in the lowest long-term government borrowing rates and best credit rating amongst the peripheral Eurozone economies.
Standard & Poor's on Friday raised its long- and short-term rating on Ireland to “A/A-1” from “A-/A-2”as Ireland plans raising new debt to replace IMF loans in 2015 and fund the maturity of €8bn in bond debt in 2016.
“The stable outlook balances our view that government finances have improved and that financial system asset quality is on the mend, against the prevailing downside risks associated with euro zone trading partners’ uncertain growth prospects and the Irish government’s still highly-leveraged balance sheet,” S&P, the leading US ratings agency, said in a statement.
The EY report says despite current strong sentiment, domestic and global risks abound, with the threat of deflation in the Eurozone and the Republic of Ireland being one the key risks to the outlook and baseline scenario. For ROI, which already experienced a bout of deflation in 2009 and 2010, the annual rate of Consumer Price Inflation fell from over 3% in 2011 to -0.1% in February 2014, before rising modestly to 0.3% by October.
Partly as a result of the large relative size of the Republic of Ireland’s export sector, and partly a function of its strong growth, net trade accounted for three-quarters of economic growth between 2012 and 2014. Growth remains heavily dependent on exports compared to the UK’s more consumer and business investment led growth (90%).
Mike McKerr, managing partner with EY said:“The strength of the ROI’s export base is recognised across the globe, and rightly so, but attention also needs to be paid to the domestic economy. It has suffered significantly during the downturn and, as it slowly returns to growth, it is critical that we look to support these vital businesses, many of whom bear scars from the last 6 years. Ireland’s export economy is more vulnerable to global risks as would be expected for a small and open economy. To reduce over-reliance on export growth, which this forecast predicts will slow from 9.7% in 2014 to 3.9% in 2015, it is important that the domestic economy continues to pick up to improve its contribution to overall growth.”
Broad-based jobs recovery improves prospects for urban and rural areas
Ten out of the thirteen broad industries across the Republic's ROI economy have registered net jobs growth since 2012 and, as the domestic economy has recovered, the sectoral pattern of jobs recovery has broadened bringing improved prospects to both urban and rural areas. The four biggest sectoral contributors to the Republic’s output growth are industry (manufacturing), professional services, financial services and ICT. These broader sectors include knowledge economy sub-sectors like pharmaceuticals and big data.
Road to full recovery remains long
Factoring in the impacts of fiscal projections, alongside latest domestic and global developments and outlooks, the Economic Eye Winter 2014 Forecast continues to show ROI economic growth outpacing both NI and UK growth in the long-run to 2024.
Professor Gibson concluded: “At first glance one might expect ROI to now be able to relax the purse strings as its public finances are in better shape, but the reality is with high debt and EU rules, even with its deficit under better control, ROI is not going to be in a position anytime soon to have a more expansionary fiscal policy. So despite all the good news about the ROI economy and it being the poster child of the Eurozone crisis economies, a more voter-friendly Budget will not be on the horizon for several years.”