Ireland will see healthy growth in employment, an increase in GDP, sustained consumer spending and further export growth this year according to the latest Quarterly Economic Outlook from Bank of Ireland.
The rise in employment is set to continue in 2017, albeit at a slower pace, with growth of 2.3% projected this year, equating to c. 46,000 new jobs. Employment growth is also on the cards for 2018, with an increase of 1.8% projected.
Rising employment has done much to lower the unemployment rate, which in January 2017 was 7.1% and is set to fall further to below 6% by the end of next year.
The outlook notes that inflation has been subdued throughout 2016. Low oil prices for much of the year and the ongoing impact of past reductions in mortgage interest rates did much to dampen the headline rate of CPI inflation which averaged 0% for the year as a whole.
While there is still some spare capacity in the economy and the weaker pound should push down on import costs, inflation is expected to pick up over the forecast horizon as domestic activity provides support and the recent increase in oil prices following the OPEC agreement starts to feed through. With these factors in mind, Bank of Ireland is projecting CPI inflation of 0.7% in 2017 and 1.2% in 2018.
Domestic activity is set to take over from net exports as the key driver of the economy with ongoing job and income gains supporting consumer spending and an uptick in residential construction and core business investment also helping.
Consumer spending in the first three quarters of 2016 rose by 3.2% year-on-year. This solid performance was driven by continued gains in employment and incomes. Increases were evident across a broad range of retail categories, not least car sales which came in at over 140,000 last year, the most since 2008. Budget measures and the falling level of household debt will also provide support over the forecast horizon, though uncertainty and the projected modest increase in inflation may weigh on confidence and households' spending power respectively.
Allowing for this, and given healthy spending over the past two years, Bank of Ireland expects personal consumption growth to ease back to 3.2% in 2017 and 3.0% in 2018. On the Government side, spending increases of 2.5% are pencilled in for each year.
Commenting on the latest Quarterly outlook, Group Chief Economist at Bank of Ireland, "2016 was an eventful year. The general election and industrial unrest at home, the UK voting to leave the EU and the outcome of the US Presidential election also made it an uncertain year. Against this background, the economy has held up well with annual GDP growth averaging 4.6% in the first three quarters."
She added, "So far, the main impact of these developments has been some softening in sentiment among consumers and businesses, and a weaker pound which is affecting firms selling into the UK market. While the external situation remains unsettled, the outlook is for continued growth in Ireland."