Ireland ‘at risk’ from shaky US-EU trade peace
Any breakdown in current ‘peace talks’ between the US and the EU, concerning tariffs on the trade of goods, could “substantially impact” upon future Irish growth, Ibec has warned.
In its latest quarterly economic outlook, the employers’ respresentative body said Ireland “has a lot to lose” from any escalation of trade wars between the two regions, noting — in particular — Ireland’s position as having the highest dependency on US steel (driven by multinationals in areas such as medical device manufacturing) in the EU.
“The US is Ireland’s largest export market, accounting for 27% of goods exports. In this context, it is welcome that the European Commission and the US Government have agreed to impose no-new tariffs, while holding talks on existing ones... However, if there is a breakdown in the talks and the trade war escalates again, it has the potential to substantially impact upon Irish growth,” it said.
Overall, Ibec is extremely bullish on prospects for the Irish economy; even holding out some hope of progress for the current housing supply crisis.
In its outlook it said the economy is in a “strong” position, with households “clearly” benefitting from rising incomes, and has “firmly” moved into a ‘post-recovery’ stage, “with both employment and consumption comfortably passing their pre-crisis peaks”.
“The economy is growing, trade remains robust despite Brexit and households are clearly benefitting through incomes which are increasing at the fastest rate in Europe,” said Ibec’s head of tax and fiscal policy, Gerard Brady.
“Last year, 19% of Ireland’s workforce either changed job or started working. This is up from 13.4% in 2010 and is a sign of the health of the labour market. As a result, the first quarter of 2018 saw the fastest wage growth in the economy since the crisis, with average wage growth reaching 2.5% year-on-year. Our view that the economy is now firmly in a ‘post-recovery’ phase is supported by all these factors,” he said.
Ibec expects GDP growth of 5.7% this year - far ahead of the 4.7% growth predicted by both the Central Bank and economic think-tank the ESRI earlier in the summer. Ibec also holds out hope for the housing crisis.
Despite only 14,446 new houses being built last year, it said the Government’s estimate of 20,000 new builds this year seems “ambitious” but “may still be achievable, given the poor seasonal conditions during the first quarter”.
While it doesn’t talk of overheating risks to the economy, Ibec does warn that so-called full-employment — an unemployment rate of below 5%, which is likely next year — is a worry, with the sourcing of workers to fill vacancies set to be a big challenge. A number of member companies, it said, are finding it difficult to attract and retain talent.
Ibec wants the October Budget to address funding for the higher and further education sectors to help upskill existing staff.
It also warned of complacency around Ireland’s competitiveness.
“The next downturn is likely to be different than the last. It is crucial we put ourselves in a strong competitive position while we still benefit from global tailwinds,” said Mr Brady.
“US tax reform, the prospect of a retreat of global trade, and Brexit will pose challenges for our economy over the coming years. At the same time, business costs are rising and undermining our competitiveness.
Budget 2019 should tackle these issues by adopting a renewed focus on competitiveness and indigenous business,” he said.
