Ireland - Economic update March 2019
The latest figures for the Irish economy suggest both a softening in Irish growth dynamics that may at least in part reflects uncertainty effects surrounding Brexit. GDP growth for the final quarter of 2018 slowed to 3.0% compared to a year ago, bringing the annual average for 2018 as a whole to 6.7%. While activities of multinationals boost the headline growth figures, we think the underlying growth rate for 2018 is somewhere between 4.0% and 4.5%. A closer look at the details show a slowing the growth rate of consumer spending in Q4 (2.6% yoy compared to the 2018 average of 3.0% yoy), in line with softer retail sales at the end of 2018, which have continued into 2019 (January 1.9% yoy).
Similarly, growth in the numbers at work in the Irish economy eased to an annual rate of 2.3% yoy in the final quarter of 2018 (compared to Q3 3.0% yoy), bringing the annual job growth average for 2018 to 2.9% (figure IE1). Importantly, regional imbalances still remain stark, as employment in Dublin increased by 3.8% yoy whereas employment in the rest of Ireland increased by 1.6%. Additionally, this latest release includes an upward revision to the unemployment rate, with the most recent figure now at 5.6% in February. This revision is likely due to a pick-up in labour force growth which increased by 1.8% in 2018 compared to a 1.1% increase in 2017. This acceleration is driven by strengthening net inward migration.
Figure IE1 – Irish jobs growth still solid but notably slower (employment, % change year-on-year)
Sentiment indicators have pointed towards consumer and business caution as well. February saw a large drop in Irish consumer sentiment as the prospect of a no-deal Brexit and domestic issues such as a nurses’ strike weighed on consumers’ minds. While we think that the economic reality for most consumers has not changed materially, this reading highlights a marked increase in perceived risk. In terms of business sentiment, while both the services and manufacturing PMIs remain firmly above 50 and thus continue to signal increased activity, sentiment among Irish service providers eased to its lowest reading since May 2013, with panellists citing Brexit as their main concern, while manufacturers accumulated a 19 year high level of pre-production inventories due to possible stock problems resulting from Brexit.
Preliminary estimates for Irish earnings data show that in Q4, average weekly earnings increased by 4.1% yoy, bringing the annual average for 2018 to 3.4% yoy (figure IE2). All 13 sectors saw an annual increase in pay but variations still remain. Private sector pay continues to drive the overall trend, with average weekly income in the private sector growing by 4.4% yoy in Q4 (2018 average 3.5% yoy). Public sector income growth picked up marginally in the final quarter to 2.3% yoy (2018 average 2.8% yoy), with scope for this trend to continue into 2019 as the Government’s deal to gradually increase around 60,000 public servants pay came into effect at the beginning of March. The pick-up in wage growth is largely a reflection of the strength of the labour market rather than cost of living adjustments. Irish inflation fell marginally to 0.7% in February from 0.8% in January.