Ireland isn\u2019t quite partying like it\u2019s 2006, but the stats don\u2019t lie \u2013 2018 has been a bumper year by most measures.<\/p>\n
The economy generated nearly 1,300 extra jobs per week\u00a0in the 12 months to end of September, up from less than 950 per week the previous year. Even if the pace of job growth slowed after the middle of 2018, this is still impressive progress by any measure, and enough to see the unemployment rate fall to 5.3% in November, down from 6.4% the previous year.
\nAlthough this is close to what economists call \u2018full employment\u2019, it should be remembered that the share of the working-age population making themselves available for work is still significantly lower (at 62.6%) than its 2007 peak (67.4%). This flatters the unemployment rate and suggests there are still some 300,000 people that could be enticed back to the workforce.
\nGrowth in average hourly earnings has picked up, from 2.1% a year ago to 3.2% now, more than double the growth rate from two years ago. The minimum wage will increase by 2.6% from New Year\u2019s Day, from \u20ac9.55 an hour to \u20ac9.80.
\nOnly part of the increase in people\u2019s pay packets is being eaten up by higher prices. Consumer prices are basically flat, edging up only slightly from 0.5% in November 2017, to 0.6% in the same month this year. This average hides important differences: the cost of housing, water, gas and electricity increased more than 5% on the year while the price of furniture and household equipment fell by more than -4%.
\nThis means real hourly wages are increasing in every sector with the exception of public administration, which clocked up only a 0.8% gain in the year to end-September.
\nWith more people at work earning higher wages, it is hardly surprising that we are spending more. Ireland\u2019s GDP figures are heavily distorted by multinational activity, but the most unpolluted \u2013 and least volatile \u2013 component is private consumption which grew by 2.9% in the third quarter of the year compared to a year earlier.
\nIf things are going so well, then why are so many people worried there may be a recession around the corner, a re-run of the horror-show we lived through a decade ago?<\/p>\n
The outside concerns\u00a0<\/strong><\/p>\n As yet, there is little sign that the Irish economy is overheating. We may be near full employment, but there\u2019s at least of a quarter million people outside the labour force that could be enticed back in. Wages are rising, but not precipitously so. Price inflation is still minimal. If it wasn\u2019t for external factors, the Irish economy has room to keep growing strongly for years to come. But, as we well know, Ireland is \u2013 for better or worse \u2013 more exposed to global economic developments than most other countries. This is where the rising risk of recession comes from.<\/p>\n Ireland\u2019s consumer confidence index has trended downwards through 2018, the decline picking up pace in the second half of the year despite a modest pick-up in November. Unlike other data points mentioned above, this is considered a signal of what is to come rather than a measure of something that has already happened.<\/p>\n There is an old saying in economics that when the US sneezes, the rest of the world catches a cold. This is less so than in the past, partly because emerging Asia (and specifically China) has come to rival the US as the main driver of global growth. For countries like Mexico and Ireland however, the phenomenon is as strong as ever because of the strength of their trade and investment links with the US.<\/p>\n The US is likely to post GDP growth north of 3% for 2018. This may not sound impressive compared to the \u2018leprechaun\u2019 levels we have become accustomed to in Ireland, but it is well above their 21st century average. If anything, US GDP is (slightly) underestimated for the same reason that Ireland\u2019s is (grossly) overestimated: it is mainly their multinationals operating in Ireland, after all. At the same time, US unemployment is the lowest it has been in half a century.<\/p>\n The main reason US growth was so strong this year is the stimulus effect from tax cuts and higher public spending, but this will dissipate in 2019 and later years. Interest rates are expected to continue rising through the first half of 2019. An uneasy trade truce with China could give way to all-out war in spring, with a ratcheting up of tariffs feeding through to higher inflation, and potentially even higher interest rates. All have negative implications for growth. There is no doubt that US growth will slow next year: the question is by how much. Fears have been growing of an outright recession sometime before the next presidential election in November 2020. Different from a year ago, the US is a relative outlier. Much of the rest of the global economy has already begun to slow, led by Europe.<\/p>\n The big question\u00a0<\/strong><\/p>\n Then there is Brexit. Already, a weak sterling has hit our indigenous exporters hard. Continued uncertainty is likely constraining investment in some sectors, and it could be one of the reasons why consumer confidence has fallen off a cliff in the past six months despite the otherwise rosy economic picture.<\/p>\n With no end in sight to the chaos across the water, fears are growing that the UK could crash out with no-deal in three months\u2019 time. I still see this a slightly less than a 50-50 chance, but the odds have definitely tightened in recent weeks. No matter what type of Brexit \u2013 hard, soft or something in between \u2013 the island of Ireland can be expected to be hardest hit economically \u2013 more so even than Great Britain.<\/p>\n If the US economy slows but continues to grow at 2% or more, and if Brexit is postponed, softened or cancelled, there is no reason that Ireland can\u2019t continue on its current path for a couple of years at least. The gathering storm could pass us by. But, no matter how strong the fundamentals of the Irish economy may seem, the risk is that they resemble a house of straw in the face of a perfect storm.<\/p>\n","protected":false},"excerpt":{"rendered":" WRITING THIS TIME last year, I expected our economic fortunes to get better before they got worse. I saw clouds gathering on the distant horizon, but no major storms forecast for 2018. Ireland isn\u2019t quite partying like it\u2019s 2006, but the stats don\u2019t lie \u2013 2018 has been a bumper year by most measures. The […]<\/p>\n","protected":false},"author":1614,"featured_media":48023,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9350],"tags":[12909,9361,12058,9721],"class_list":["post-48022","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-english","tag-brexit","tag-irlandija","tag-rost-vvp","tag-jekonomika"],"yoast_head":"\n