The boom is back, says Irish business, and this time ‘it’s for real’
• Business group says Ireland has exited the ‘recovery’ and is into expansion
• Irish households ‘have never had it so good’, insists its lead economist
• Full employment by end of 2018 predicted as number of emigrants returning ‘has not grown significantly since the economic turnaround’.
• But sky high costs and shortage of homes risks damaging recovery
• Rents rising six times faster than rest of Europe, wages four times faster
Ireland’s leading business group IBEC, the equivalent of the CBI in this country, this week forecast the Irish economy will grow 4.2% this year.
Ibec’s head of tax and fiscal policy Gerard Brady said: “Since the crisis we have seen a recovery in the Irish economy which has been exceptional. This was driven by the strength of the Irish business model with record FDI and an increasingly global footprint from our indigenous industries.”
The report predicts that Ireland could reach full employment before the end of 2018 – unless there is a significant increase in returning emigrants. The report says it is “notable that the number of Irish persons returning from abroad has not grown significantly since the economic turnaround”.
One of the key findings is that the “net wealth position” of Irish households has never been better and, it insists, is on a sounder footing than the Celtic Tiger years because it is not built on credit.
“The current phase of growth is also more sustainable than the pre-crisis period in that it is underpinned by business investment rather than unsustainable credit flows,” it says Irish households are “more cautious” about carrying debt than in 2007 and have €4 billion more on deposit than they have outstanding in loans.
“Although the overall level of household assets may have been higher during the boom period, these assets were highly leveraged. As a result the net wealth position of Irish households in nominal terms has never been better,” says Ibec.
The overall value of household assets – mainly homes and property – was higher during the boom, but that was cancelled out by the debt levels, according to the report, while household savings are €16.5bn higher than in 2007.
“As a result the net wealth position of Irish households in nominal terms has never been better,” the report says.
It says the shift from mass negative equity to more broad-based household solvency is likely to affect the wider economy, including boosting confidence among consumers who have more disposable income than in Celtic Tiger or boom years. In contrast to here in the UK where incomes for most people have stagnated and fallen since the crash and in the last 18 months in particular Ireland is seeing real wage growth – four times the EU average.
“Irish average real (inflation adjusted) earnings are now experiencing the strongest growth of any country in Western Europe at 1.8 per cent,” it says.
“The greatest gains from increased incomes have accrued to the bottom deciles (those on lower incomes) in proportional terms. Overall the impact of improving employment and wages is clear… with 80 per cent of the net improvement in average household income in the State since 2013 coming from increased employee income.”
Ibec estimates that growth for 2017 will be 5.9 per cent with future growth strong enough to outweigh any immediate negative impacts from Brexit. It says investment in the Irish economy will grow by 10.7 per cent in the coming year, while consumer spending will rise by 3 per cent.
It also predicts exports will grow by 3.8 per cent in 2018 and that Irish consumers will recover confidence as the Irish economy nears full employment and household debt levels fall. But Irish rents are rising six times faster than the rest of Europe and “a failure to resolve the housing crisis will eventually lead to higher prices on other goods as well”, as it forces employers to increase wages even higher, which will be passed on to consumers.
Ibec reports that 55,000 net new jobs were created in the economy in 2017 and says the disposable incomes of Irish households are growing at four times the euro-zone average. It says employment growth will be more than 2.2 per cent this year and will slow as the Irish economy nears full employment, which could effectively arrive before the end of the year unless Ireland attracts home its returning emigrants at a faster rate.
“The major question facing the economy over the coming years will continue to be the ability of the economy to meet the needs of a growing population in a sustainable manner. Major challenges are already clear in the housing sector,” said Gerard Brady, Ibec’s head of tax and fiscal policy.