What do Bangladesh, India, Libya, the Ivory Coast, and Ethiopia have in common? Well, taking the latest projections from the IMF as gospel, that quintet will have the distinction of being the only countries in the world to have grown by more than Ireland, in terms of headline GDP in 2018, writes Philip O’Sullivan.
Of course, the quirks of our multinational sector can distort Ireland’s reported headline growth numbers, but a range of indicators support the contention that the economy had a sparkling 2018. Government tax receipts were up 7.6% in the first 11 months of the year. Housing completions climbed 28% in the first nine months of 2018.
The latest data show that goods exports increased 4% on the same period in 2017. Perhaps the most satisfying statistic is that the economy added around 1,300 jobs each week in 2018.
The total number of people with a job, at 2.3 million, is at a post-independence high, while unemployment has fallen to a 10-and-a-half year low, of 5.3%. Households are benefiting from the broad upturn in activity.
Tighter labour market conditions have seen the re-emergence of wage growth, which is currently running at more than 3%, or five times the annual increase in the Consumer Price Index, underpinning a decent uplift in real incomes.
These gains have been augmented by the modest income tax reductions that have been a feature of Irish budgets in the past few years. Household balance sheets also continue to strengthen.
Since the depths of the crash, household net worth has climbed 76% and now stands at an impressive €757bn, an increase of 5% from the credit-fuelled peak seen during the Celtic Tiger years.
Household debt has fallen to its lowest level since 2005.
The public finances are unsurprising beneficiaries of the stronger backdrop. When the full year data are published next week, they are likely to show that the general government balance was better than the budget day projection of a €315m deficit.
The National Treasury Management Agency had another successful year on the bond market, raising a total of €17.25bn from investors at an average cost of just 0.81%, which is less than a third of the blended rate on the national debt.
Notwithstanding the jump in new home builds, the most striking feature of the housing market remains a large mismatch between supply and demand. Only 19,000 units are likely to have been built in 2018, while new household formation in Ireland is estimated to be running at between 30,000 and 50,000 per annum.
Of course, household formation is endogenous — it doesn’t occur unless housing is available — so the tail of unmet housing demand continues to be added to.
As a result, the path of least resistance for both house prices and rents remains to the upside.
The prospects for non-residential property in Ireland look sound. Brexit relocations and the broader economic strengthening are very supportive for the office market. Some 104 cranes loom over the Dublin skyline, three times the number at the start of 2016.
A recent study of Brexit relocations by Knight Frank showed that the capital has won more investments than any other city in Europe, while Cork has received the same number of relocations as Barcelona and Munich.
Brexit relocations are also helpful for the industrial and logistics market, as firms recalibrate their supply chains to be ready for any eventuality.
Times are more challenging for the retail sector, with a large number of companies getting into difficulties in 2018.
However, we judge that Ireland will be less affected than many other western countries by the structural pressures facing retail due to the relatively small supply in the decade following the crash; the low population density; as well as expensive postal rates.
Looking ahead to 2019, we judge that the economy will continue to grow at a healthy clip. We forecast headline growth of 4.5%, although Brexit could prompt a rethink.
Other external factors to consider include the potential effects from rising protectionism and tighter monetary policies across much of the developed world.
– Philip O’Sullivan is chief economist with Investec Ireland