View from Dublin: Brexit has put the brakes on Irish economy
The past week saw a slew of data published on the Irish economy. The figures, when taken in the round, show an economy that is still growing.
But an increasing number of indicators are pointing to a slowdown. The dreaded Brexit, and the uncertainty it has generated, is at the root of the weakening.
Among the indicators published were the GDP figures for the final three months of last year. In most countries these are the most important indicators of overall economic performance. But, as is well known, Ireland's GDP figures are distorted by the extreme openness of the economy. They always need to be treated with a lot of caution.
As such, let's first consider what can be relied upon in the GDP data to tell us something meaningful about the economy.
First and foremost is consumer spending. Purchases of goods and services by consumers account for the biggest chunk of expenditure in the domestic economy.
The figures showed that 'private consumption', as it's known in GDP jargon, increased by 0.5% in the final quarter of 2018 compared to the third quarter. That represented a marked slowdown on the middle of the year. More recent monthly figures for retail spending, a much narrower measure of consumer expenditure, show there was a further weakening in the early months of 2018.
What accounts for this? It is certainly not because people have less money in their pockets. Wage growth is surging. A tightening labour market has pushed unemployment down and given workers more bargaining power when it comes to pay demands.
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Some of the slowdown in overall consumer spending growth is likely explained by a slowdown in the rate of employment growth. The numbers at work in the economy continue to grow, but at a decelerating rate.
However, stronger pay growth and slower employment growth should be balancing each other out in terms of the change in overall consumer income. If that is the case, then the slowdown in consumer spending is more likely to be explained by precautionary saving. Growing concerns over the effects of Brexit are the most obvious reason for this. The KBC/ESRI consumer sentiment index weakened over the course of 2018. By the final quarter of last year, consumers' future expectations hit their lowest level in almost half a decade. In February, that measure nose-dived. The monthly fall of 17 points was bigger than anything recorded during the years of banking crisis and bailout. Even if a no-deal Brexit can be avoided at the end of next week, it has already had a negative effect on the most important part of Ireland's domestic economy.
Much better news came from the export side of the economy. Last Friday brought the first trade data of the new year. Goods exports in January surged yet again to hit another all-time monthly record. In January more than €13bn worth of stuff was shipped overseas, close to a doubling on five years ago.
Last Thursday's balance of payments figures give the only timely data on the other side of the export picture - internationally traded services. Their growth in recent years has been even more phenomenal than manufactured goods. In the final quarter of last year they surged to fresh record highs, yet again, reaching almost €50bn.
However, both goods and services exports are becoming more concentrated on individual sectors. Fresh data also shed light on the hyper-topical issue of housing.
The CSO published planning permission numbers for the final quarter of last year and its house price figures for January. Planning permissions are a decent indicator of future supply. Planning permission numbers showed a massive 40% increase in new home planning permissions in 2018 compared to 2017.
That is very good news in terms of the supply pipeline and comes on top of a strong trend in recent years, which has seen a very strong increase in home-building, albeit from a very low base.
Less good was the trend over the course of year, which, if continued in 2019, would suggest much less of an increase in planning permissions this year.
The ramping up of supply in recent years, as the residential side of the construction industry recovers and higher prices boost builders' profits, has contributed to a cooling house price inflation. Indeed, national house prices fell, month-on-month, in November, December and January.
That was the first time since the economy recovered that prices have fallen for three months on the trot.
It would be wrong to overstate the importance of this development. The housing market always slows around year-end and underlying demand and supply factors mean prices are more likely to rise than to fall in the short term.
But things have certainly cooled a little, in part because of an increase in supply.