Economic growth to remain significant in 2018 and 2019

Strong growth is likely to persist in the Irish economy through 2018 and 2019, as indicated by the underlying trends in taxation receipts and overall consumer and producer sentiment. The ESRI’s latest Quarterly Economic Commentary states that GDP is expected to grow by 4.7 per cent in 2018, followed by 3.9 per cent growth in 2019. Current forecasts incorporate the technical assumption that a European Economic Agreement (EEA) will be established between the UK and the EU. Unemployment is expected to decline to 5.6 per cent in 2018 and 5.0 per cent in 2019.

Given the concerns about potential overheating in the Irish economy, Garcia-Rodriquez examines the implications of two fiscal scenarios; one that increases public capital expenditure and another that reduces personal taxation rates. The results suggest that, given the Government’s commitment to the National Development Plan in the medium-term, there is little or no scope for cutting the overall tax burden which would stimulate the economy further.

The Commentary also focuses on the recent productivity estimates produced by the CSO. This data now distinguishes between sectors dominated by foreign-owned multinational and domestic enterprises. The availability of this granular data permits a better understanding of underlying economic activity in the Irish economy.

The Commentary also examines the rate of credit growth in the Irish economy. While stocks of credit are still quite low, growth rates in household credit have been increasing significantly mainly due to increased activity in the housing market. In terms of current house price developments, recent data from the Property Services Regulatory Authority suggests that house price increases are more significant at the lower end of the market.

Finally, the Commentary highlights certain external risks to continued domestic economic performance. Uncertainties at a European level, whether through Brexit or in other member states, present challenges to a small open economy like Ireland. Furthermore, any reduction in global economic activity, such as through a reduction in trade openness, would have a material impact on the domestic economy.