The Irish economy and the 'New Normal' of 2018 and 2019 - Austin Hughes Chief Economist KBC Bank Ireland - Enterprise Ireland
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The Irish economy and the
‘New Normal’ of 2018 and
2019
Austin Hughes
Corporate Treasury: Mark Hensey
Mark.hensey@kbc.ie 01 4321400 Chief Economist
Business Banking: Kevin McCarthy
Kevin.mccarthy@kbc.ie 0876684261 KBC Bank Ireland
Sweet or sour?
Global Growth IMF forecasts
5
4.5
4
3.5
3
2.5
2
forecast
Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18
date
forecasts for 2012 2013 2014 2015 2016 2017 2018 2019
An upturn for other people An increased global focus
on distributional (and reputational) issues
Demographic trends highlight key social and political
as well as economic changes
Trade tensions risk unravelling a globalised
world
Old and new both seen past the peak
Oceans apart of late
Shared currency, divided countries
Easier monetary policy is the answer. What
was the question?
Horses led to water may be drinking shock!
Central Banks Driving by the rear view mirror
Interest rates turning but market still
focussed on low for long‘Winter is coming’
Brexit; can it be ‘a gentle stroll along a smooth
path to a land of cake and consumption’?
YouGov 29 Nov‘Project fear’ strikes again
Divided they… stand?
I’m an empire , get me out of here
The UK border: preparedness for EU exit 24 OCTOBER 2018
• Key system developments are at risk. In September 2018, BDG reported that 11 of 12 major projects to replace or
change key border systems were at risk of not being delivered on time and to acceptable quality
• Infrastructure identified by government departments cannot be built before March 2019. …Without the necessary
infrastructure, HMRC, Border Force and others may not be able to fully enforce compliance regimes at the border on
day one. They are exploring alternative options
• Businesses do not have enough time to make the changes that will be needed if the UK leaves the EU without a ‘deal’.
Government departments can only implement some of the changes that are required at the border. They are also
heavily dependent on third parties, such as traders, being well-informed and making changes to their systems and
behaviour.. Government papers from July 2018 stated that it was already too late to ensure that all traders were
properly prepared for ‘no deal’.
• ….. Plans are progressing to cope with issues such as queues of traffic in Kent, and to enable the continued supplies of
essential goods and medicines
• In the event of ‘no deal’, departments accept that border operations will be less than optimal on day one….. The
government has not defined what ‘less than optimal’ might mean…Sterling already exposed but still vulnerable
For Ireland, Brexit is a known unknown
40
Ireland’s key trading partners 2015
(share of trade in goods and services)
35
30
25
UK
20 US
Non-UK EU
15
10
5
0
exports imports total tradePrecise scale of Brexit impacts still uncertain but aggregate estimates miss the point
Brexit hasn’t been a real shock… so far
But some areas are suffering
Irish Business beginning to focus on downside
But the end isn’t nigh
Precise scale of Brexit impacts still uncertain but where will hurt most seems clear
Non-Tariff Barriers a notable threat
It’s not all bad news.. (even if it mostly is) FDI could be boosted
Back to the boom?
Jobs growth highlights current momentum
The turn in the Irish economy is forcefully seen in strong and sustained growth in employment
Dublin and Border the standouts but regional
job gains remain choppyPay picking up, not powering ahead
Overheating worries overdone but that doesn’t mean there aren’t problems
Once bitten….
Housing market still a major problem
Jobs Growth and Property Market Telling
Broadly Similar StoriesHousing market slowly moving towards balance but path likely to remain bumpy
Fundamentals still fair?
The housing market remains central to wealth and
woeFiscal constraints less binding than
they appearCan we avoid another own goal?
500
400
Stock of FDI as % of GDP,2015 (source OECD)
300
200
100
0
LUX IRL NLD BEL EST HUN CZE SWE LVA PRT EU SVK GBR AUT ESP POL OECD FIN ISR DNK USA SVN FRA DEU ITA GRC KOR JPNA gradually ageing population creates
opportunities as well as problems
6000000
5000000
679100
493500 560100
4000000
529300
440000 439500 471100
421500
362000 553800 589400 650500
311500
3000000
486100
449400
669200 704000 769500
571600
526600
2000000 724200
776300 623700
548900 628400
656800 565000 608100
642600 639600
1000000
928100 992300 1008600
831800 832400
0
1998 2002 2008 2012 2018
0-14 years 15-24 years 25-34 years 35-44 years 45-54 years 55-64 years 65+ years Employment, TotalIn case I forgot something….
Summary
➢ The ‘New Normal’ is a world of rapid change but slower growth, lower
rates and continuing surprises
➢ Uncertainty and ‘localised’ shocks key features of new global backdrop
➢ Central Banks starting to ‘normalise’. What sort of rate rises are coming
and where?
➢ Some further Brexit twists to come
➢ Irish recovery strong and sustainable but
challenged by ‘Brexit’ and tax wars
uneven sectorally and geographically
still scarred by the crisis
Not notably improved by Budget 2019Business Banking
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