Budget 2020, which was based on the assumption of a no-deal Brexit, projected GDP growth of 5.5 per cent this year and just 0.7 per cent next year, reflecting the Brexit impact and a weakening in the global environment. Growth in modified domestic demand – a better barometer of economic conditions in Ireland – is estimated at 3.2 per cent this year and 1.4 per cent next year.
Indeed as a barometer of how well our economy is performing, there is no story more positive than the one emanating from our labour market. The strong growth in employment over the last number of years has continued into this year, with total employment increasing by 45,000 (+2.0 per cent) in the year to Q2 2019. As a result, there are now 2.3 million people at work in Ireland.
In an EU context, Ireland remains one of the fastest growing Member States. The strong growth and performance seen in our economy is also clearly illustrated by a comparison with the performance of our main trading partners – the Euro Area, the UK and the US.
For the Euro Area the European Commission is forecasting growth of 1.1 per cent this year, and 1.2 per cent next year. The GDP forecast for the EU28 is for growth of 1.4 per cent in 2019 and 2020. This represents a significant slowdown from the growth rates seen in 2015-2017.
The European economy is expected to enter a protracted period of subdued growth and low inflation. GDP should continue to grow in all Member States, albeit at a more moderate pace, in 2020 and 2021. The performance of individual Member States is diverging with some areas (e.g. Central and Eastern Europe, Malta, and Ireland) expanding faster than others (e.g. Italy, Germany).
For the UK, modest GDP growth of 1.3 per cent is expected this year and 1.4 per cent next year, based on a technical assumption of status quo in terms of trading relations between the EU27 and the UK.
Growth in the US economy is forecast to slow as tailwinds from the fiscal stimulus implemented last year fade. Growth is expected to fall from 2.3 per cent in 2019 to 1.8 per cent in 2020.
In common with Ireland, there has been a recovery in employment growth in all our main export markets – though at a more modest pace – with a corresponding reduction in unemployment.