Economic growth strong in 2018 and 2019
The Irish economy looks set to register another exceptional performance in 2018; employment is growing at 3 per cent with taxation receipts across most headings also experiencing better than expected returns. The ESRI’s latest Quarterly Economic Commentary states that GDP is expected to grow by 8.2 per cent in 2018, followed by 4.2 per cent growth in 2019. Unemployment is expected to average 5.7 per cent in 2018 before falling to 5.1 per cent in 2019.
Our forecasts for 2019 are subject to the technical assumption that the UK’s continued membership in the EU will effectively remain in place after March 2019. However, the economy faces an unprecedented degree of uncertainty in 2019; the outcome of the Brexit process, combined with the possibility of increased international trade tensions, could have significant implications for the economy’s performance in the new year. In the Commentary, we illustrate how a Brexit scenario, where WTO tariffs would apply, could almost halve the growth outlook in 2019.
Budget 2019 saw a significant increase in Government expenditure particularly on capital projects. As a result, it is now likely that there will be a deficit in the general Government balance in 2019, whereas a surplus had looked a possibility before the budget. While most taxation headings are witnessing sizeable increases in 2018, a key feature of the public finances in the present year is the significant growth in corporation tax receipts. As a substantial portion of this growth is due to a small number of companies and so potentially vulnerable to a reversal, it is imperative that policy makers do not base expenditure on potentially volatile revenues going forward.