Irish rents and wages to rise in robust economy even as Brexit threat looms, says EU
The costs of rents will continue to rise and wages will increase amid a “robust” economy despite ever-present threats from Brexit and global trade wars, the EU predicts.
The forecasts in its latest country-by-country spring report are by and large upbeat for the Irish economy despite it projecting a dramatic slowdown in the headline measure of GDP.
It sees growth slowing to 3.8% this year and to 3.4% in 2020 from the heady 6.7% expansion in 2018.
Nonetheless, the EU projects that growth measures that more accurately reflect underlying Irish economic activity without the artificial distortions of the multinationals show the economy will continue to expand strongly, by around 4% this year and in 2020, though down from 4.5% in 2018.
It has mixed news on the costs of living. Wages rising by 2.9% in 2018, and then “accelerating” to 3.6% in 2020 will help drive the costs of services, with rents and restaurant prices increasing particularly strongly.
However, overall price inflation will stay subdued this year and for 2019, helped by lower prices of manufactured goods, says the report.
Amid the housing crisis, the costs of rents have been the standout feature of the consumer price index, having risen 5.6% in the past year. Many housing experts predict the shortage of new homes is likely to persist for years as the building industry continues to struggle to meet demand.
The EU also has upbeat news for the Government finances as tax revenues continue to flow into its coffers.
The report again spells out the risks of the Government relying on the surge in corporate tax receipts to fuel capital spending projects “and a drift in current expenditure in areas such as health”.
Corporate tax revenues helped drive tax revenues up by 7.9% last year but that Government spending rose 6% while lower interest payments “facilitated” a reduction in the debt burden, the EU points out.
“Risks to the fiscal outlook remain skewed to the downside, mainly reflecting uncertainty as regards the economic outlook and the sustainability of the current level of some sources of Government revenue (notably corporate tax),” it says.
The growth in jobs will slow but continue to fuel spending in the economy, according to the report. Employment growth and construction “underpin the domestic economy” and unemployment will fall to 5% in 2020, which compares with 5.4% last month.
The exporting side of the economy which is dominated by the multinationals faces a slowdown in global trade although it is not all gloomy news as Ireland’s mix of pharmaceutical and IT exports are more insulated from major turndowns, it says.
But the uncertainty over the type of Brexit the UK will eventually agree hangs over the EU’s outlook for Ireland.
“The uncertainty surrounding Ireland’s economic outlook comes mainly from external factors, particularly the terms of the UK’s withdrawal from the EU, as well as possible changes in the international taxation and trade environment,” warns the spring report.
And the multinationals could add to the uncertainty. “On the domestic side, signs of overheating could become more apparent. The huge impact of the often unpredictable activities of multinationals could drive headline growth in either direction,” it says.
