Overall our economy is in good shape and is expected to grow this year and next. Modified domestic demand, an underlying measure of growth in the economy, grew by 4.5 per cent for 2018 as a whole.
One of the best barometers of the heath in the economy is the labour market. The strong growth in employment over the last number of years has continued into this year, with total employment increasing by 81,200 (+3.7 per cent) in the year to Q1 2019. As a result, there are now more people working in Ireland than ever before.
At the cornerstone of our recovery, has been the improvement in our competitiveness. Since 2008, the Central Bank’s real harmonised competitiveness indicator has improved by approximately 22 per cent. The improvement in our competitiveness reflects the hard-won productivity gains made over the last number of years, alongside wage and price moderation.
Importantly, the robust economic growth in recent years has not yet given rise to significant inflationary pressures. In the first four months of 2019, average annual inflation was just 1.1 per cent was recorded.
On wage developments, while average annual earnings grew by over 3 per cent in 2018, this came on the back of a near decade of low or negative growth in earnings. The rise in labour income is a welcome development, however it needs to be monitored closely, as a significant acceleration in wages could undermine Ireland’s relative competitiveness to other European countries.
Over the medium term, the domestic economy is expected to act as the primary driver of growth. In this context, we must remain conscious of the potential upward pressure this will place on both prices and wages, that could give rise to a loss of competitiveness.