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05 October 2017

Agri Economic Outlook

Posted By: AIB Business
outlook-agri-245

The Irish economy continues to grow at a strong pace. Recent GDP figures from the CSO showed that GDP rose by 6.1% year-on-year in Q1 2017. This follows on from strong growth of 5.1% in 2016. While the data are distorted by issues related to the presence of large multi-national firms, Ireland remained the best performing economy in the Eurozone last year.

The underlying GDP data showed that consumer spending rose by 1.8% year-on-year in Q1. Construction output was up by 20.7% in the quarter, as the sector continues to ramp up to meet the considerable overhang in demand for residential property. However, the agricultural, forestry and fishing sector declined by 0.9% year-on-year in Q1, after increasing by 13% in 2016.

Although, other data from the CSO show a number of positive developments for farmers. For example, prices of agricultural produce were up 10.7% year-on-year in May, due in no small part to a sharp rebound in milk prices. At the same time, farm input costs were down 1.3%. This suggests improving profit margins and incomes for some farm sectors, assuming normal weather patterns.

The strong Irish economic growth is continuing to be reflected in the labour market. Employment rose by 19,300 between Q4 2016 and Q1 this year, with employment up 68,600 versus the first quarter of 2016, a 3.5% rise.

Meanwhile in terms of the property sector, housing completions were up by 25% in the year to May. However, this would still only put the construction sector on course to build 18,000-19,000 new homes this year, well below the estimated demand of around 30,000 per annum. The lack of supply of housing is helping to drive up prices, which rose by 11.6% year-on-year in June, according to the CSO.

Other recent indicators of Irish economic activity suggest that the economy continues to grow at a strong pace. For example, underlying retail sales (excludes car sales) grew by 1.9% in Q2, following on from similarly strong growth of 1.8% in Q1. Meanwhile, the jobless rate fell below 6.5% in the summer months.

Survey data have also been very positive. Both the manufacturing and services PMIs, a good leading indicator of economic activity, remained at strong levels in July, while the construction index has remained particularly strong in recent months. In terms of how the economic situation is translating into the public’s perceptions, the ESRI/KBC measure of consumer confidence was up near a 15-year high in June.

Therefore, there seems to be little sign yet that uncertainty around Brexit and the sharp fall in the value of sterling is having a significant effect on the Irish economy, though some sectors are being impacted. The euro, though, did rise back up to the 90p level against sterling in August. Brexit remains a serious event risk for the Irish economy. Much will depend on the nature of the exit deal reached between the UK and EU, probably towards the end of 2018.

Overall though, the Irish economy is expected to grow by 4% or above in 2017, with growth of 3-3.5% being forecast for 2018/19. The economy will be supported by the steadily improving labour market, further recovery in construction, more expansionary fiscal policies, low interest rates and improved growth in the global economy, particularly in the Eurozone.

 

Table 1: Economic Forecasts – Ireland

Annual % Change Unless Otherwise Stated

 

2016

2017 (f)

2018 (f)

2019 (f)

Real GDP

5.1

4.0

3.5

3.0

Real GNP

9.6

3.5

3.0

2.5

 

 

 

 

 

Consumer Spending

3.3

3.0

2.5

2.2

Government Spending

5.3

1.5

1.5

1.5

Fixed Investment

61.2

6.0

5.0

5.0

 

 

 

 

 

Exports

4.6

4.5

4.2

4.0

Imports

16.4

4.0

3.8

3.7

 

 

 

 

 

HICP Inflation (%)

-0.2

0.2

1.0

1.5

Unemployment (%)

7.9

6.3

5.3

4.8

General Govt. Deficit (as % of GDP)

-0.6

-0.4

-0.1

0.1

 

 

 

 

 

Source: CSO, AIB Economic Research Unit Forecasts

 (f) = forecast

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