Economy growing at robust pace, but gives rise to risk of overheating

• Strong pace of growth in prospect supported by strength of domestic activity and favourable international growth environment
• As economy moves towards full capacity, risk that continued strong expansion could give rise to overheating pressures
• Material risk of “hard” Brexit, while protectionism and potential shifts in international tax regime continue to pose a threat

The Central Bank of Ireland has today published its third Quarterly Bulletin of 2018. The Bulletin examines recent trends in the domestic economy and provides the Central Bank’s forecasts for the Irish economy and its views on domestic macro-economic policy issues.

The Bulletin reports:

• Domestic demand to provide the main stimulus to growth, with underlying domestic demand expected to grow by 4.4% this year and 4.1% next year
• Continuing strong and broad-based growth in employment, though growth is expected to gradually moderate in the coming years. The unemployment rate is forecast to average 5.4% in 2018 – revised down from 5.6% in the April bulletin – and 4.8% next year
• Inflation is expected to remain moderate at 0.7% this year and 0.8% next year. The issue of weakness in goods price inflation is explored in Box E
• Key components of domestic investment, such as building and construction, continue to rebound, though from a relatively low base
• In light of new figures from the Central Statistics Office (CSO), forecasts for housing supply have been revised downwards since the April bulletin. Housing completions are now expected to number 17,500 this year and 22,000 next. However, the forecast for the overall rate of growth in housing supply remains unchanged
• The decrease in the estimated level of GNI* in new CSO data means that the General Government gross debt-to-GNI* ratio stands at 114% of GNI* in 2016, compared to the previous figure of 106%. The figure stood at 111% in 2017.

Mark Cassidy, Director of Economics and Statistics, said: “The continued growth in the economy, which is broadly balanced between domestic and export activity, is to be welcomed. So too is the projected growth in employment, with our economy due to benefit from an additional 100,000 net new jobs by the end of 2019.

“However, there are economic risks facing Ireland from several fronts that cannot be ignored. It is clear that a “hard” or disruptive Brexit remains a material risk, while the threat of potential trade wars and changes to international taxation have not abated.

“Domestically, the strength of economic growth means our economy risks hitting full capacity, which gives rise to the risk of overheating or boom-bust cycles. This underscores the importance of building fiscal buffers during the good times.”

Notes

The Bulletin includes a wide range of analytical work in Boxes, including:

• CSO National Accounts and Balance of Payments Statistics
• A monthly indicator of domestic economic activity
• The response of Irish exports to world demand
• Why are prices for some consumer goods falling in Ireland?

Transcript of media briefing with Director of Economics and Statistics