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Unemployment set to drop again but Brexit could have negative impact on Irish growth

The ESRI said a neutral Budget may be the best option next month.

Image: Shutterstock/Denis.Vostrikov

UNEMPLOYMENT IN IRELAND is set to decline to 5.1% next year.

Overall in 2018 to date, the unemployment rate has been 5.7%. It dipped to 5.1% in June and July but rose again to 5.6% in August.

Rising private consumption, increases in the amount of tax being collected and a decline in unemployment indicate the economy will continue to grow this year and next, according to the Economic and Social Research Institute.

The ESRI’s latest Quarterly Economic Commentary states that GDP is expected to grow by 8.9% in 2018, followed by 4.5% growth in 2019.

The ESRI said its forecasts for 2019 are Brexit-dependent and “subject to the technical assumption that an agreement along the lines of the European Economic Area will exist between the UK and the EU after March 2019″.

The organisation said growth is expected to be faster than previously predicted due to accelerated growth in domestic activity and multinational-related activity which has had “significant implications for the Irish trade balance”.

Consumer spending has strengthened throughout 2018 and construction investment has also accelerated. Housing completions of 18,655 units and 24,500 units are forecast for 2018 and 2019, respectively.

Budget 

The report notes that a neutral Budget – one that neither contracts nor stimulates the economy – may be preferable next month. 

The ESRI said the presence of “key infrastructural deficits in Ireland such as in the public housing area requires significant investment by the State”.

Undertaking such investment can add to the productive capacity of the economy, and reduce the increase in housing costs which presently pose a significant challenge to domestic competitiveness.

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“Secondly, introducing an explicitly contractionary Budget, when the risks of a no-deal Brexit scenario are quite high, may amplify the potential fallout from an economic downturn and hence reinforce the shock on the economy rather than insulate it.”

According to a recent opinion poll, 64% of people would prefer income tax cuts and 34% would favour spending increases in the Budget. €800 million has been earmarked for Budget 2019 and there has been much speculation as to how the money will be spent.

Last month Taoiseach Leo Varadkar outlined a number of measures people can expect. In short, he wants a balance of spending and tax cuts. He said he wants the majority of any additional cash to go into improving public infrastructure rather than tax reduction.

About the author:

Órla Ryan

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