Irish jobless rate drops, but still above UK
The good news just keeps on coming this year on the Irish economy. Earlier this month, we got yet more very strong figures on the public finances writes Oliver ManganChief Economist atAIB.
Tax receipts were €2.5bn ahead of schedule for the first 10 months of the year, while debt interest payments were €500m lower than expected. Despite likely overruns on government spending, it means that the budget deficit will fall sharply to below 2% of GDP in 2015.
Meanwhile, the latest retail sales figures show a continuation of the very strong growth seen in the first half of the year. The volume of retail spending, excluding the motor trade, rose by 1.3% in the third quarter, representing a gain of 7.2% on the same period last year.
The figures are even stronger for the motor trade, with new car sales up by 30% in 2015 for the second consecutive year. Then last week saw the release of another very impressive set of CSO labour market statistics for the third quarter of 2015. These showed continuing strong job growth and a further large fall in unemployment.
Employment rose by 11,600 or 0.6% in the third quarter. This gave an annual gain of 56,000, or 2.9% over the same period in 2014. Furthermore, all of the job growth was in full-time employment, which rose by over 59,000, with a small decline in part-time employment. Another positive sign is that the job gains were broad-based, with employment rising in 12 of the 14 sectors in the CSO survey. Construction saw the biggest gain, with jobs growth of 15,000, or 13.3%, in the year. Meanwhile, employment in industry rose by 13,600 or 5.7%, consistent with the very strong growth in output from the sector over the past year.
Not surprisingly, Dublin saw the biggest jump in employment, with an increase of 29,000 or 5%. Overall, total employment now stands at 1.975m, its highest level since early 2009. The steady rise in employment, combined with the emigration seen in recent years, have resulted in a sharp fall in unemployment. The unemployment rate dropped to 9% in September before edging down to 8.9% in October. It is now well below the peak unemployment rate of 15.1% reached in early 2012.
The CSO data show the number of unemployed stood at 197,000 in quarter three, down from 238,000 a year earlier and a peak level of 327,000 reached at the start of 2012. Thus, unemployment fell by 41,000 in the past year and is now 130,000 below its peak. The Irish unemployment rate has now fallen well below the average rate for the eurozone of 10.8%.
However, Ireland still has some way to go before its rate drops to US and UK levels of 5% and 5.3%, respectively. The trend is strongly downwards, though. We expect that the jobless rate could fall to close on 7% by the end of next year. Obviously, the key factor in this regard is that the economy continues to perform strongly in 2016. There is no reason why this should not occur, provided the global economic environment remains reasonably favourable.
The expectation is that the economic upswing will continue next year in our key export markets of the US, UK and the eurozone. Key macro drivers, in terms of interest rates and the currency, are expected to remain very favourable. The sharp depreciation of the euro, over the past 18 months, has been of major benefit to the traded sector of the Irish economy, in particular the currency’s marked fall against sterling and the dollar.
With the ECB continuing to pursue a very loose monetary policy stance, the expectation is that the euro will remain weak next year.
There are, of course, downside risks to the economic outlook. The recovery in the global economy remains fragile and could falter. In particular, there are concerns that the slowdown in emerging economies, especially China, could impact growth in the rest of the world next year.
A vote in favour of ‘Brexit’ in the UK would also present serious challenges for Ireland.
Overall though, the expectation is that global recovery will continue in 2016 allowing the Irish economy to grow by 4% or more again next year.