Strong economic growth and declining unemployment forecast for 2017 and 2018

December 13, 2017

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Macroeconomics
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  • GDP growth forecast at 5.0 per cent in 2017 and 4.2 per cent in 2018.
  • Growth continues to come from domestic sources with a strong forecast for household spending.
  • Robust expansion of labour market will continue with unemployment expected to average 6.2 per cent in 2017 and 5.4 per cent through 2018.
  • Revised government surplus for 2018 given improved tax revenue collection and underspending.

The Irish economy continues to perform strongly in 2017, driven, in the main, by domestic factors. Improving household balance sheets and falling unemployment are expected to support solid consumption growth over the forecast horizon. Upward trends in underlying investment activity, particularly construction, look set to continue into 2017 and 2018 according to a variety of indicators.

The Irish labour market continues to perform strongly. Current levels of underemployment are now close to those that pertained in the pre-crisis period.  The unemployment rate is forecast to average 5.4 per cent in 2018. The tightening of the labour market and projections for inflation are also likely to result in moderate rises in wages over the period. As the labour market approaches full employment levels, wage growth has intensified, rising four times faster in the period between Q2 2016 and Q2 2017 compared to the same period in the previous year.

This issue of the Quarterly Economic Commentary includes a special focus on potential productivity growth in the Euro Area. Kieran McQuinn and Karl Whelan highlight the declining trend that has persisted in recent decades. They find that if this trend continues, it would significantly restrict the potential for economic growth in the region. Conor O’Toole focuses on the tapering of quantitative easing in Europe, assessing how much of the future policy rate increases could pass through to the Irish economy. The research finds that we should prioritise reducing public and private debt before the cost of borrowing rises.

Author Professor Kieran McQuinn commented, “The Irish economy is likely to have experienced robust growth again in 2017. Tax receipts and the continued increase in labour market activity highlight the performance of the Irish economy.  However, key risks to the outlook in the near to medium-term include the slowdown increasingly apparent in the UK economy and the potential for overheating in the domestic economy over the coming year.”