Economic growth forecast for 2020 and 2021 despite political uncertainty and Brexit challenges
- GDP growth of 4.8% (2020), 3.6% (2021)
- Consumer spending to rise by 3.0% (2020), 2.8% (2021)
- Export growth of 7.0% (2020), 5.0% (2021)
- Unemployment rate to fall to 4.6%
According to the latest Economic Outlook for Ireland published by Bank of Ireland, GDP is projected to increase this year and again in 2021, on the back of largely positive forecasts for consumer spending, investment and exports. This follows a strong performance by the Irish economy last year – a full-year outturn figure for 2019 isn’t available yet but it is estimated that GDP grew by 5.8%.
Bank of Ireland’s Chief Economist Dr Loretta O’Sullivan sees GDP growth of 4.8% in 2020 (up 1.0 percentage point on the Bank’s July 2019 forecast) with contributing factors including ongoing consumer spending, a strong export-orientated multinational sector, and the expected green-lighting of some business investment plans which had been halted prior to the UK and the EU signing off on the revised Withdrawal Agreement. GDP is also expected to expand in 2021, albeit more moderately at 3.6%, as slack in the economy reduces and new trading arrangements with the UK kick in.
According to the Outlook, consumer confidence has improved lately and spending prospects are good, with spending growth expected to continue at a rate of 3.0% this year and 2.8% in 2021.
Ongoing job gains and rising incomes will underpin further increases in household spending. Ireland’s unemployment rate has been trending lower and is expected to drop further to 4.6% in both 2020 and 2021. Hourly earnings growth averaged 3.3% year-on-year in Q1-Q3 2019, and almost half of workers are expecting a pay rise in 2020.
Despite the inconclusive outcome of the recent general election and uncertainty surrounding domestic policy, investment growth is being pencilled in for 2020 and 2021. Some of the Brexit fog has lifted, helping to unlock stalled business investment and a majority of firms are on a growth trajectory, with three in five planning to expand in the next 1-3 years.
Solid export growth of 7.0% is expected for 2020, moderating to 5.0% in 2021. FDI remains strong and the recent easing in international trade tensions is good news. However, new trade arrangements with the UK will mean more red tape and headwinds for exposed indigenous sectors.
Commenting on the latest Economic Outlook, Dr Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “We are facing a time of significant change in Ireland with long-standing political and trading landscapes shifting. The worst case outcome of a ‘no deal’ Brexit has been avoided but the details of the new relationship between the UK and the EU have still to be hammered out. And with Election 2020 delivering a hung Dáil, the economy is also entering a period of domestic policy uncertainty. It will likely take time for a new government to be formed – if one can be – and a lot of wheeling and dealing to get an agreed policy programme over the line. This will give the political pundits plenty to talk about but as households and businesses wait to see to how things play out, it means that spending plans could be put on hold, dampening economic activity.
“Despite this uncertainty, our Outlook forecasts solid albeit moderating GDP growth of 4.8% this year and 3.6% in 2021. Further job gains are also on the cards taking the unemployment rate down to 4.6%.”