Economics: Ireland’s Central Bank revises up economic growth forecasts

The Central Bank of Ireland has this morning published its latest Quarterly Economic Bulletin.

The Bulletin reports that underlying domestic demand is projected to grow by 5.6% this year (revised up from 4.4% in the previous Bulletin), moderating to 4.2% in 2019 and 3.6% in 2020.

Projections for the labour market continue to signal that the economy is moving towards full employment, although some extra capacity is possible through further inward migration and increased participation in the labour market. This suggests an additional 154,000 jobs by 2020, with a new peak employment level of 2.35 million expected.

Although headline measures remains volatile, evidence suggests a marked acceleration in the growth of some important domestic investment components, particularly housing and non-residential construction. Projections for new dwelling completions have been revised up since the last Bulletin, to 19,000 this year (+1,500), 24,000 in 2019 (+2,000) and 28,500 in 2020.

Compensation per employee is forecast to increase by 2.8% in 2018, rising to 3.3% in 2019 and 3.4% in 2020. Overall, inflationary pressures remain well contained despite the strength of domestic demand and tightening labour market conditions. HICP inflation is projected to remain stable at 0.8% in 2018 and 2019, rising marginally to 1.1% in 2020.

The Bulletin also highlights a number of material risks to economic growth:

There is a risk of overheating arising from the strength of domestic demand and tightening labour market conditions. There are risks to corporation tax flows. As a proportion of overall taxation, Ireland is second only to Luxembourg in terms of reliance on corporation tax within the European Union. Coupled with the high concentration of foreign owned multinational firms (especially US firms), this leaves Ireland more exposed than other EU countries to changes in the international tax and trade environment.

Meanwhile, a disorderly “Brexit” would pose immediate challenges for the Irish economy and financial system.

Alan McQuaid (12/10/18)