Economic Outlook with IBEC’s Alison Wrynn

Three Business Blog Team
On: 31 Aug 2017
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The quarterly IBEC Economic Outlook is Irish businesses’ best indicator of what the future may hold. Alison Wrynn – an IBEC economist – analyses the report and considers what its predictions mean for businesses in Ireland.

Successful business is all about forward-planning, which is why the IBEC Quarterly Economic Outlook is widely anticipated by Irish business managers and owners, looking for clues as to what the future may hold. With a Budget due in October and the business implications of Brexit still to be worked out, this quarter’s report is a particularly important read.

Growth vs. Risk

The report states that the economy is continuing to experience “exceptional growth in 2017.” GDP is expected to increase by 4.2% and employment by 3.2%.

Broadly, the picture of growth is favourable, however Brexit is the unknown looming on the horizon.

Although its effects are currently limited to the impact of exchange rate fluctuations and can’t be fully predicted for the longer term, enough suppositions can be made about the risks that Irish businesses can begin to take mitigating actions.

Of course, as with all reports, the figures don’t tell the whole story without some expert analysis. For example, consumer spending continues to increase – by 3.3% in 2016, 2.8% in 2017 and a predicted 2.6% for 2018 – but this is not as straightforward a trend as it may appear. Half the growth in spending can actually be attributed to population growth rather than any positive economic impacts. This isn’t necessarily negative as we have one of the fastest growing populations in the EU; so if all else remains constant then Ireland’s predicted population growth will ensure consumer spending continues to grow for over a decade. Where that spending occurs is another matter.

The Age of Spending

Many Irish businesses are not feeling the benefit of the growth in consumer spending. Retail sales turnover, for example, is below its peak, with spending on books and clothing significantly lower than 2007 levels. Retail sales turnover in general has improved, but online sales are showing seven times the speed of growth of retail.

Meanwhile the demographic profile of the country is changing, which will have implications for businesses.

Over the same period as the predicted population growth (to 2031), the percentage of the population aged over 60 will rise from its current 18.3% to just over 25%. If rent continues to rise faster than wages, this means that those in the older age group who own their homes will have more spare cash than those who are younger and spending more of their money on rent. So businesses serving the older members of the population could be in line for better performance than those with a younger target market.

The Known Unknowns

The largest impact on Irish businesses in the coming years will undoubtedly be Brexit. Whether it proves to be positive or negative is still unknown and largely unpredictable – making it difficult to know what best to do to mitigate the risks or capitalise on the opportunities.

Certain sectors may notice more of an effect than others. The food sector, which exports 40% of its output to the UK, may be more affected than the pharmaceutical sector for example, for which the UK is only a minor customer. Food businesses may therefore decide to be more cautious about investing, whereas pharmaceutical companies may feel that it will be more or less business as usual post-Brexit. Neither can know for sure what the future holds and therefore neither can know for sure what steps to take. Yet some general conclusions can be drawn and some broad approaches based on them.

If your business is largely dependent on the UK, then it would be wise to err on the side of caution regarding investment. Or, if you are going to invest, do so with a view to diversifying your market beyond the UK.

If, on the other hand, your business already looks further afield, then with an outlook for the economy that is largely positive you can perhaps afford a more optimistic attitude. Even so, the possibility of currency fluctuations may suggest that hedging is a wise precaution.
The only other cloud on your horizon could be the growth of populism in other countries, leading to increased insularity and a reduction in global trade. For a country like Ireland – with one of the most globalised economies in the world and which exports around 100% of its GDP – that could be a seriously negative development.

To end on a high note, remember that whatever else the IBEC Quarterly Economic Outlook reveals, it shows that Irish GDP growth is still the strongest in Europe and that employment (excluding construction) is back at peak levels. The Budget Submission section of the IBEC report calls on the Government to spend more on investment to build on this success and on the “compelling” track record of recovery from global recession, to make Ireland once again Europe’s fastest-growing economy.

Read the IBEC Q2 2017 Quarterly Economic Outlook here.