Christmas is a time for reflection. After a year when Brexit dominated economic discussion, how do we assess what happened to the Irish economy?
Here, in five graphs, is an attempt to look at the factors which affected our economic life this year – and to consider briefly the outlook .
1. Growth: How to measure the growth rate of the Irish economy? The official GDP figures, when they are all totted up at the end of the year, are likely to show a growth rate of 6 per cent plus, in real terms.
As has been much discussed the official GDP figures for Ireland are distorted by the impact of multinationals here and their accounting practices. New measures are being developed to try to give a better picture.
The one chosen for the graphic is one of core domestic demand, a breakdown of the official figures by Goodbody stockbrokers to illustrate the true underlying growth in the domestic economy.
The graph shows the annual change – as opposed to the level of demand in cash terms – and is thus quite dramatic, ranging from the collapse of 2010 to the strong recovery of recent years.
On the Goodbody measure, growth in the domestic economy was just under 3 per cent in the third quarter.
It was supported by consumer spending – now ticking along at a growth rate of over 3 per cent – and higher Government spending. However there was some fall of in investment by domestic businesses in the middle of the year, presumably due to Brexit uncertainty.
With the January 2020 cliff-edge threat removed, Goodbody analysis Dermot O’Leary says there could be a bit of a bounce-back in domestic investment going into next year.
With incomes on the rise, consumer spending should be up, too.
It remains to be seen how the outcome of the upcoming Brexit talks might affect confidence and spending in the second half of next year. There is the threat of another Brexit cliff-edge next December, though how the talks will progress is very difficult to predict, beyond noting that Boris Johnson says he is aiming for a harder version of Brexit which does bring some threats for Ireland.
2. Jobs: One of the most solid and up-to-date indicators of how the economy is doing is the total number of people at work. This is a net figure, balancing off gains and loses and so captures the good and the bad.
Ireland suffered from a heavy loss of jobs during the crisis, but the recovery has been strong. A few times in recent years the upward trend seems to have been stalling, only to then accelerate again.
The latest data, for quarter three of this year, show a 2.4 per cent annual growth rate in total employment – which roughly translates as 1,000 extra jobs per week. Given the labour shortages in some areas, the fact that the unemployment rate is below 5 per cent and problems in areas like housing and congestion, you might expect the jobs growth rate to slow.
But so far it has kept going.
The bulk of the new jobs being created are full-time and the rate of what is called involuntary part-time employment – people working part-time who would prefer to work full-time – continues to edge down.
The employment rate here – the number of people in the 15 to 64 year age group at work – is now just over 69 per cent, around the EU average. There is debate about whether it could rise much further – given the increased time people spend in education and the barriers facing couples where both work full time. The UK rate is 75 per cent.
Also, immigration will remain a key source of new jobs and here housing and high rents are a concern.
Jobs growth may slow in 2020 – but only a shock, such as a hard Brexit, is likely to send it into reverse.
3. Earnings: While employment started to recover in 2013 it was not until the end of 2105 that there was any sign of a generalised rise in earnings.
As the jobs market tightened wages started to rise and are now heading firmly upwards. In the five years to the third quarter of this year, wages are up 13.5 per cent on average.
There are big sectoral gaps, of course, with IT(plus 23.2 per cent) and admin and support services ( plus 27 per cent) leading the way and the public sector lagging at 6 per cent. Accommodation and food services, one of the lowest paid sectors, is up nearly 20 per cent.
As general inflation has been largely absent, this means that spending power on average has gone up. However there are two caveats here. The first is that Ireland is a relatively high-priced country for many things – regularly close to the top of the EU average for a basket of goods.
So modest incomes only go so far here.
The second is the one that we have spent much of the year discussing: rising rents and high house prices. For those on average earnings, affordability in the housing market remains either challenging or impossible in many urban areas, though a recent slowdown in house price growth is welcome.
Likewise rental growth has slowed, but it remains well above the Celtic Tiger highs, with availability also a big problem.
One of the really notable trends is that the price of the goods we buy remains steady or is even falling in some cases, while the cost of many services is rising. The areas of the consumer price index which rose over the past year were things like accommodation and hotel services and hairdressing – both partly due to the rise in VAT– as well as the cost of rents and health insurance premiums. For those who have a lot of spending in these categories – typically younger families – wage rises have lagged the increase in their cost of living.
4. House prices : How could we forget house prices ? The annual growth rate has slowed sharply to just under 1 per cent in October, according to CSO figures, with stagnation or even falling prices in Dublin and a rise of 3.3 per cent outside Dublin.
Affordability issues remain for many potential buyers but clearly a mix of the impact of the Central Bank rules and rising supply is moderating price increases.
And in more expensive parts of Dublin prices are now falling. It will be interesting to see how the lifting of the immediate no-deal Brexit threat at the end of January affects the market early in 2020.
The rise in house prices – around 85 per cent since the trough of the market in 2013 – has also had an impact on household wealth.
Central Bank figures show that household wealth in Ireland has now surpassed the levels reached at the peak of the boom, with rising house prices the main reason for the increase.
Household wealth was measured at €440,000 on average in the middle of this year – this is slightly below the previous €477,000 record. The cumulative figure for the whole country is still higher as there are more households now.
Encouragingly, this wealth is built on firmer foundations are debt levels are much lower now. The debt to income ratio of Irish households has fallen from 209 per cent in 2009 – in other words debts equal to on average two year’s income– to 121 per cent now, back to levels last seen in 2003.
While people are limited in the way they can “ cash in” on this housing equity, it is still the key source of wealth – and inheritance – for most. Again, there is a generational gap here.
Older homeowners have had a “free run” as prices have gone up. Those who bought during the crisis have at least seen the value of their asset increase. For those seeking to buy now, high prices will remain an issue.
