Swift rebound in spending forecast in Irish economy
A swift rebound in consumer and business spending is in prospect for 2022 as almost all pandemic restrictions come to an end, according to Goodbody’s latest quarterly outlook.
The Back in Business report predicts growth in domestic demand of about 5.8% this year.
The forecast tallies with that of Minister for Finance Paschal Donohoe who expects a spending boom as the economy reopens.
Writing in yesterday’s Business Post, he said, “A retail and hospitality sector that is open normally, personal savings that are still high, improving access into our airports and the impact of prolonged economic supports are all reasons for optimism.”
He said, “We should see a surge in consumption in some parts of the economy.”
Dermot O’Leary, Chief Economist with Goodbody, said he agrees with the minster. “Our quarterly outlook is called Back in Business and that’s what it feels like for a lot of people out there today.”
Mr O’Leary said if you compare the forecast for the Irish economy for 2022, it would put Irish growth as the second fastest in the euro area, just behind Estonia.
The recovery will be differentiated across different sectors of the economy. The multinational sector has done exceptionally well and has excelled.
However, domestic service businesses are trying to recover to a large degree after the past two years, and he warned that “some won’t survive”.
“Yes, there are businesses that won’t survive, but there are a lot of businesses being set up too, so Ireland saw the fastest recovery in business start-ups in 2021 and that bodes well for 2022.”
The wage subsidy schemes will be wound down over the coming four months, and it will pose challenges for businesses.
Mr O’Leary said the retail and hospitality businesses have benefitted the most from those supports, but he points out that this was always due to be a temporary support.
“I think we have to remember that the Government has been very agile and aggressive in terms of the amount of supports they have given to households and businesses.
“In the case of businesses, there have been over 40 separate schemes. It is not going to end tomorrow, and for some businesses it will be a struggle and they won’t survive, but it was always going to be temporary.”
Businesses will also face new challenges, particularly in relation to the labour market. The report finds that the demand for labour is very strong and the supply of labour is quite weak which is related to migration effects.
“Also, there’s been a big increase in wage inflation – it’s now running at levels that we haven’t really since the pre Global Financial Crisis period,” Mr O’Leary said. “Companies are going to have to deal with wage inflation and labour shortages as we go through the next 12 months.”
The housing market was the number one political issue in the pre-pandemic period, and as the pandemic moves into the rear-view mirror, Goodbody predicts that we will see it move again to the number one political issue.
In the last 24 months, supply has pretty much stalled around the 20,000 level. “We think that we’ll see an increase in supply in the next two years, close to the 30,000 mark. We have seen a surge in housing starts since the end of the most recent lockdown but that’s not enough to keep up with household demand,” he said.
“We will continue to see price inflation over the next 12-18 months – probably at a rate that is lower than the last 12 months, but still pretty high in a historical and an international context. Increasing supply over the next number of years will be a key policy goal for the government.”