One of the “big four” professional services firms has increased its growth forecast for the State’s economy in light of strong corporate tax receipts and the increase in new jobs.
EY revised its gross domestic product (GDP) growth forecast for the State slightly upwards to 4.1 per cent in 2019 on the back of positive data in the first three months of the year.
It said an extra 81,200 net new jobs in the year to March and corporate tax returns exceeded expectations, noting that the “impressive” growth was coming at a cost, including talent shortages which were set to continue.
While the labour market performance was fuelling spending in the domestic economy, companies were “struggling to secure the talent they need at an affordable price, and will soon face even higher costs”.
EY chief economist Prof Neil Gibson noted that rising salary costs and accelerating inflation were the "price of success and a welcome endorsement of economic performance".
“However, this does create a cost pressure for firms, and this is accelerating the exploration of innovative digital or technological solutions to reduce overheads.”
EY forecasts growth in job-creation to slow from 2.8 per cent this year to 1.8 per cent in 2020 and 1.6 per cent in 2021.
‘Prudence account’
The prediction by EY of 4.1 per cent growth this year is broadly in line with other forecasts. The Central Bank of Ireland is predicting growth of 4 per cent.
And while EY is positive about the strong corporate tax receipts, there have been recent calls for the Government to funnel this money into a “prudence account” .
The State's fiscal watchdog, the Irish Fiscal Advisory Council (IFAC), said that using corporation tax funds to stimulate the economy at this juncture in the economic cycle was not advisable given the strong underlying growth.
Additionally, IFAC warned that the Brexit fallout could cause considerable damage to the Irish economy, and that corporation tax funds should be saved for a time when they were needed.
Highly attractive
EY noted that Ireland remained a “highly attractive” destination for foreign direct investment for companies moving operations out of the UK.
EY's head of markets Michael Hall said that the strength of the economy "suggests that even a hard Brexit may not push the country into recession".
On a global level, corporate confidence on an economic level was quite positive, with 93 per cent of business leaders surveyed by EY believing the global outlook is improving.
Such positivity is, however, at odds with the views of economic forecasters who cite risks associated with global trade wars, Brexit and the disruption of key sectors such as the automotive sector.
“The fact that economists and business leaders view the outlook differently is not surprising, and it reflects the strong demand in the economy at present, with the impact of trade wars and the UK’s departure from the EU yet to be fully felt,” Prof Gibson said.
“Encouragingly, with half a million more people employed across the island than there were six years ago, there is considerable strength in the domestic economy that will provide a level of insulation against any global slowdown.”
