New analysis from EY’s Economic Eye is suggesting an increasing divergence in economic fortunes across the island of Ireland.
The Economic Eye is an economic forecast from professional services firm EY.
The latest report has put the Republic of Ireland’s (ROI) GDP growth at 4.9pc in 2017, making it the fastest-growing European economy. Economic growth in Northern Ireland (NI) is at a more modest level, at 1.4pc for 2017.
Chief economist at EY Ireland, Neil Gibson, said that a healthy labour market coupled with a low rate of inflation is helping the economy in the ROI, adding that these factors are “leaving the country in a position of strength to face the economic and geopolitical uncertainty that lies ahead”.
Northern Ireland is a more challenging environment
He continued: “While the strength of the euro has a positive impact on exports, a more challenging environment pervades in Northern Ireland, which is not helped by the absence of a local government.
“Higher dependence on consumer and government spending in Northern Ireland, and very different inflation levels, are creating divergence in spending power between the north and south, which is contributing to a weaker NI outlook.”
In terms of employment growth from 2014 to 2017, it has been positive across the island, with a 12.4pc increase in net employment spread across a broad range of sectors and geographical areas. Economic Eye also projects growth of 144,000 net additional jobs in the period of 2017 to 2020 across the island of Ireland.
ROI is largely driving the growth, where 138,500 news jobs are projected, led across a number of sectors including construction, manufacturing, transport and storage and ICT. However, the report highlights a more challenging outlook for NI, with a projected growth of 5,800 jobs by 2020.
Gibson added: “Given the significant jobs increase we forecast in the Republic, it is likely skills shortages will come into even sharper focus in 2018. In Northern Ireland, while uncertainty over Brexit appears to have had little impact on the job market to date, the squeeze on real incomes will soon begin to bite.
“That said, exchange rate falls that are supporting tourism and cross-border shopping will continue to have a positive impact that may mitigate the squeeze to some extent.”
Retail sector is improving
The Economic Eye report said that the retail sector has recovered to 2010 levels, with total growth of 14pc in the ROI since the historic lows of 2013.
EY estimates that cross-border shopping over the last year to NI is in the region of €418.1m. Gibson explained: “The impact of Irish consumer spending in the north will contribute to closing the retail performance gap slightly between the two economies.
“ Given strong consumer growth, cross-border shopping – in addition to significant online retail, which is not in these figures – does not appear to be having a significant overall impact on retail businesses in the Republic. The consumer and retail sector is one of the largest providers of employment for all ages and skill levels across the island.
“Given its importance and the profound changes underway in the sector, we ask if it is time to rethink taxation models for retailers and consumption generally.”
Country managing partner at EY Ireland, Mike McKerr, said that the Irish economy is generating “significant momentum, suggesting some resilience to Brexit”, although this differs depending on sectors and locations.
Speaking about the recent spate of talks, McKerr stated: “Developments in Brexit negotiations announced on Friday [8 December] are undoubtedly a positive move, and should contribute to some level of stability for both businesses and individuals on the island of Ireland and the UK, particularly around the free movement of labour.
“However, there is still quite a substantive discussion to take place in phase two around the border and trade, so scenario planning must still remain in sharp focus across all sectors.
“As Brexit negotiations continue, due consideration must be given to talent, tax, currency and site location. Companies that proactively prepare for the changes to come stand to reap considerable benefits. There’s no such thing as being over-prepared when it comes to Brexit.”