Our take on what is happening in the economy and what it means for you
These latest unemployment figures continue to impress but come as no surprise given the signals from business and consumer sentiment indicators that suggest recent economic concerns are beginning to fade. A slight note of caution is warranted as vacancy levels are starting to tail off but. overall, the labour market performance since the pandemic is a particular economic bright spot.
The March 2023 CSO figures have shown that the value of exports from Ireland decreased by 7% compared to March 2022. Exports of Medical and pharmaceutical products accounted for 38% of all exports in March 2023. In terms of geographical breakdown 30% of exports went to the US, 39% to the EU, 8% to Britain, 2% to NI and 21% to the rest of the world. The value of imports for March 2023 decreased by 7% when compared to March 2022. This means that in the first quarter of 2023 overall exports have decreased by 3% while imports have increased by 10%.
Great Britain remains an important player in Ireland's export market, and this is evidenced by the fact that exports to Great Britain in March 2023 were €1.76 billion, an increase of €350 million (+25%) compared with March 2022.. The main changes were increases in the exports of Chemicals and related products, Machinery and transport equipment and in the exports of Food and live animals. However, the previous over-reliance on the British market is no longer the case, given that exports to Great Britain accounted for 9% of overall exports from Ireland which demonstrates that the Irish market is continually sourcing new markets for its products. The value of goods imported from Great Britain in March 2023 was €21,459 million, a decrease of €454 million (- 24%) compared with March 2022.
The CSO figures for March 2023 in relation to trade on the island of Ireland were relatively static compared to March 2022 as the impact of Brexit continues. While this is only one month’s trade figures and the figures for the first quarter of 2023 show an increase of 3% in exports to NI and an increase of 6% of imports from NI, it may indicate that while trade within the island of Ireland has continued to grow in the first quarter of 2023 it is growing at a slower pace.
It will be interesting to see if these trends continue into the second quarter of 2023 as many of the ‘new’ supply chains become established business relationships or whether the political stalemate in respect to the implementation of the NI protocol/Windsor Framework agreement could have an impact on cross border trade.
The labour market is the gift that keeps giving. With unemployment now below 4%, there are 15,000 fewer people unemployed than a year ago. This is an exceptional performance in the context of the economic challenges faced over the past number of years. A note of caution is still required however, as continuing cost of living pressures and ongoing global uncertainty are still weighing on consumer sentiment which softened a little in the last month.
Imports from Great Britain grew by 27% to €1.9 billion in February 2023 compared with February 2022. Exports to Great Britain rose by 24% to more than €1.2 billion in February 2023 from February 2022. It is positive that the trading figures with Great Britain are robust despite interest rate rises and the noticeable increase in the cost of living.
The unemployment rate appears to have stablised at current levels for now, which can be regarded as a good outcome given the recent uncertainty around tech jobs. With consumer sentiment now showing signs of increasing, and corporate tax receipts performing exceptionally well, hope is growing that recessionary fears are abating and a more settled economic period lies ahead.
The unemployment numbers provide yet more encouragement that the economy is weathering the challenges presented by inflation and doesn’t appear impacted by the tech jobs slowdown. The number of unemployed people is now down to 116,500. Could this positive run continue to bring the number below 100,000, a figure last achieved in 2005? Economic headwinds suggest not, but I wouldn’t bet against it.
The December CSO figures have shown that the value of exports from Ireland increased by 26% in 2022 to a total value of €208 billion when compared ith 2021. Exports of Medical and pharmaceutical products accounted for 36% of all exports in December 2022. In terms of geographical breakdown 30% of exports went to the US, 39% to the EU, 8% to Britain, 2% to NI and 20% to the rest of the world. Imports also reached a record high of €140 billion which is an increase of 35% compared to 2021.
Great Britain remains an important player in Ireland's export market, and this is evidenced by the fact that exports to Great Britain in 2022 were €17,167 billion, an increase of €2,749 million (+19%) compared with 2021. The main changes were increases in the exports of Chemicals and related products and Machinery and transport equipment, with a decrease in the exports of Food and live animals. However, the previous over-reliance on the British market is no longer the case, given that exports to Great Britain accounted for 8% of overall exports from Ireland which demonstrates that the Irish market is continually sourcing new markets for its products. The value of goods imported from Great Britain in 2022 was €24,040 million, an increase of €8,572 million (+55%) compared with 2021.
The CSO figures for 2022 confirmed that there has been a significant increase in cross border trade on the island of Ireland in 2022 as the impact of Brexit continues. This is due in part to businesses adjusting their supply chains to avoid the administrative burden associated with importing goods from Britain. Trade within the island of Ireland has continued to grow in December 2022 figures showing that imports from Northern Ireland for 2022 increased by €1,310 million (+32%) to €5,354 million when compared with 2021.Exports to Northern Ireland were €4,942 million in 2022 (+31%) on the same period in 2022.
It will be interesting to see if these trends continue into 2023 as many of the ‘new’ supply chains become established business relationships or whether changes to the NI protocol could have an impact on cross border trade.
The beginning of the new year brings with it a mix of quiet optimism and underlying concern as to what the year ahead will hold. Optimism that the damaging inflation that caused so much pain to households and businesses alike in the previous year will continue to dissipate, and concern that the up-to-now resilient Irish labour market may start to show the impact of weaker consumer and business sentiment. Today’s unemployment rate shows a consistent picture to that of the end of 2022 remaining at near historic lows with little change in the underlying figures. The January figures continue to highlight the strength of the Irish labour market despite ongoing domestic and global pressures.
Albeit overall trading from the UK to the EU has reduced, imports from Great Britain to Ireland grew robustly by 30% to €2.1 billion in November 2022 compared with November 2021.
On the contrary, exports from Ireland to Great Britain decreased by 6% to €1.6 billion in November 2022 when compared with November 2021. It will be interesting to monitor this trajectory over the coming months as this may be an indication of a declining trading relationship.
Despite fears that particularly weak consumer sentiment and job loss announcements in the tech sector would start to bleed into labour market data, today’s unemployment figures continue to demonstrate resilience. Unemployment is now back at pre-pandemic levels and while concerns around inflation and a potential economic slowdown continue a labour market downturn is not baked in. Indeed, the strength of the labour market is once again shifting the narrative towards labour shortages, a view supported by Grant Thornton’s latest Irish Business Voice survey that identified staff recruitment and retention as one of the key areas of concern facing Irish Businesses.
Imports from Great Britain increased by 88% to €2.8 billion in October 2022 compared with the October 2021. This growth is quite remarkable when one considers that, almost two years on, the impacts of Brexit being additional costs, administrative burdens and unpredictable delays are still being widely experienced by many Irish businesses and consumers when buying British goods.
As we reflect on 2022, it is difficult to comprehend just how different the economic environment is. At the start of the year, momentum was building for a strong economic performance. As we know, inflation then tightened its grip on the economy and has injected significant pain and challenge.
Throughout, the labour market has confounded weaker consumer and business sentiment surveys to continue growing. Today’s figures provide further encouragement, but we remain mindful of recent churn in the tech sector, which may impact unemployment figures in the months ahead. There is no doubt that the months ahead will be bumpy, but the labour market enters this period in a position of strength.
Imports from Great Britain increased by 41% in September 2022 compared with September 2021. This reliance on the British market remains steadfast, notwithstanding the current economic uncertainty in the United Kingdom at present.
In relation to overall imports, the unadjusted imports for September 2022 were valued at €13 billion which represented growth of more than €4.5 billion when compared with September 2021. In September 2022, Ireland’s unadjusted exports of goods increased by €4.8 billion to €19.6 billion compared with September 2021. It is welcoming to see that the numbers therefore remain resolute despite interest rate increases and the sharp incline in the cost of living.
Exports to Great Britain increased by 59% in August 2022, due to an increase in the exports of Chemicals & Related Products. In terms of overall exports, goods exportation increased by 30% in January to August 2022, and the value of imports increased by 39% in January to August 2022, when compared with the same eight-month period in 2021.
Imports from Great Britain increased by 77% in August 2022 compared with August 2021.
In August 2022, Ireland’s unadjusted exports of goods reached €19.5 billion, an increase of €6.3 billion compared with August 2021. The unadjusted imports for August 2022 were valued at €12.5 billion, representing growth of more than €4.7 billion on August 2021.
Technology can help mid-market firms to offset the damage caused by soaring inflation. But how do companies globally ensure they get the best return on investment? Here, we explore the opportunities and risks for businesses in the year ahead.
‘We’re seeing growing anxieties around the risk of cyber-attacks to Irish businesses coming through in the International Business Report findings, and it’s no surprise either when we see the volume of attacks growing year-on-year.
‘The financial and reputational damage a cyber attack causes to a business and its people cannot be underestimated, and it’s reassuring to see businesses are acting now to prevent and mitigate against that risk. Staff training and efficient and upgraded IT infrastructure are going a long way to support this.
‘While Ransomware has been seen as the major threat in the last year and has been the clear focus of Irish organisations, other issues such as cloud security and digital supply chain security will increasingly command focus.’
“As climate change moves to the forefront of the political, social and economic agenda, Irish businesses have been faced with the challenge of adopting more sustainable practices and becoming more transparent with ESG reporting.
Irish businesses have been confronted with the uncomfortable truth that they must either embrace ESG and sustainability, or become laggards compared to their competitors or counterparts.
It is highly encouraging to see that 42% of Irish businesses consider ESG to be a priority for the coming 12 months and it is testament to that fact that Irish businesses are forward-thinking when it comes to navigating the challenges posed by the current economic climate.”
‘It’s very clear that businesses are navigating a period of uncertainty and planning accordingly to offset the impact of inflationary pressures via increases in selling prices. While optimism levels have dropped significantly in Ireland since the previous IBR survey, the sentiment for the economic outlook is slightly more positive than our numbers in the UK and the EU average which are at 59% and 52% respectively.
‘It’s important that businesses continue to insulate against inflationary pressures and the international trading environment at least in the short to medium-term while we monitor how markets react. Market diversification, business process efficiencies, digital transformation and automation are some of the ways businesses can do this.’
The factors that are viewed as acting as a major constraint on businesses are largely unsurprising. Energy costs are now reported by 60% of respondents to be a constraint, up from 55% in H2 2021. For context, the average rate up to 2020 was 18%. Energy costs are therefore a relatively new, and mounting challenge. Despite significant media coverage around economic uncertainty, specifically inflation, the percentage of businesses citing economic uncertainty as a constraint fell to 40% from 48% in H2 2021.
The availability of skilled labour has declined dramatically as a constraint since H2 2021. Then, 63% if respondents cited this as a constraint but that has declined to 45% in H1 2022. Labour costs have remained elevated as a constraint, with 58% of respondents referencing these. This is two percentage points higher than in H2 2022 but well above a five year average reading of 42%.
Somewhat surprisingly, the percentage of businesses citing regulations and red tape as a constraint has increased by 16 percentage points between H1 2022 and H2 2021. While this may be a temporary issue, as Irish firms adapt to a new trading relationship with the United Kingdom, it will be an important metric to track to flag up any longer term risks to Ireland’s reputation for ease of doing business.
While the proportion of Irish firms signalling their optimism has declined in H1 2022, investment intentions are up across all indicators bar investment in new property. 23% of respondents expect to invest in new property, down from 34% in H2 2021. The 23% figure is more in keeping with the ten-year average of 24%, suggesting that H2 2021’s 34% reflected an uncertainty about space requirements as people returned to work.
The strongest intention to invest is in staff. Perhaps reflecting the tight labour market, 63% of respondents intend to invest in staff, up from 55% in H2 2021. Intentions to invest in R&D are also particularly strong, up from 42% in H2 2021 to 58% in H1 2022. Despite the uncertain economic times, a large proportion of Irish firms are open to invest in their future competitiveness.
A lot of talk lately has been about the potential for a recession in the face of rising prices. The Summer Economic Statement faces up to the challenges ahead and correctly plays up another ‘r’ word, resilience. The economy has been resilient in the face of the three major shocks of the pandemic, Brexit and the Russian invasion of Ukraine. Labour market performance has been strong, and exchequer receipts have over performed. While these positives can buffer the economy to some extent, the economic headwinds are gathering pace. With borrowing costs starting to rise, and debt levels high, Budget 2023 is a finely balanced endeavour which will have to juggle helping with higher prices, limit fuelling more inflation and keeping in mind higher borrowing costs.
The unemployment figures continue to provide good news in the face of mounting economic uncertainty. With consumer and business sentiment increasingly downbeat, and the Employment Wage Subsidy Scheme ending this week, there are increasing concerns that a recession is coming. How the labour market reacts over the coming months will thus be keenly observed. While a recession is not currently predicted, an increasingly nervous consumer may lead to a switch in that view in the months ahead.
The CSO figures for February 2022 demonstrate continued growth of exports to Great Britain with an increase of 21% when compared with February 2021. This brings the total value of exports from Ireland to Great Britain for the month to just over €1billion. This increase was driven by the rise in exports of food and live animals, confirming the continued reliance of Great Britain on the Irish market in these key sectors.
Irish businesses are looking to reduce their dependency on the UK market amid continued fallout from Brexit, according to Grant Thornton Ireland’s International Business Report. The survey of 62 mid-size Irish businesses highlights the ongoing concerns for any further Brexit-related checks or red-tape measures that may come into effect in 2022; with over a quarter (27%) of Irish businesses reducing their exports to the UK, and a further 21% reducing their reliance on UK suppliers.
'Irish businesses are facing mounting pressures in sourcing and keeping skilled workers across 2022. The shrinking pool of skilled workers poses a number of challenges in terms of business growth, coupled with the challenges of inflation, supply chain issues, and rising energy prices.
Despite these issues, there is room for optimism on the current state of play in the labour market. Over half of Irish businesses are looking to invest in the upskilling of staff over the next twelve months, in turn allowing them to grow and develop their enterprises, and nearly half of Irish businesses (45%) expect to grow their teams and increase employment over the coming year.'
‘Businesses remain optimistic for the coming year as the recovery from the pandemic prompts an increase in demand but we’re seeing increasing concern and new challenges to growth in spite of this. Skills and talent shortages, rising energy and therefore production costs, and the increasing cost of doing business as markets return to more stable trading patterns, are of great concern.
‘From a labour perspective, there is a skills shortage globally in a number of sectors that represents a major challenge for businesses in terms of growth, including here in Ireland, and the lengthy visa-processing times and other red-tape hurdles have only exacerbated this issue. Rising costs of doing business, rocketing energy prices and supply chain challenges also hinder the growth prospects in a variety of sectors and industries.
‘But with business optimism climbing to a three-year high, and many businesses insulating through new business processes and digital transformation, there is hope for businesses to continue growing in both domestic and international markets over the coming year.’
Optimism
Rising optimism has been a feature of the IBR since the low point of H1 2020 when 39% of Irish businesses were optimistic about the next twelve months. Since then, as vaccine development and a successful roll out enabled economic restrictions to give way to reopening, business optimism has been on a strong upward trend. The latest IBR finds 85% of businesses optimistic about the economic outlook. This is up on the 76% from H1 2021 and 15 percentage points higher than the global average. Of course, the emergence of the Omicron variant has changed the economic context yet again but the impact of that will not be known until H1 2022. The current expectation is that the impact from the Omicron variant will not be as severe as previous Covid waves.
Outlook
The general trend of Irish business optimism carries through to the outlook indicators in the IBR. Almost two thirds of IBR respondents expect to increase their turnover and the buoyant labour market, which has seen job listings surpass pre-pandemic levels, appears set to continue. 45% of businesses expect to increase their staff compliment and only 13% expect to see a decrease. Given the new trading relationship between the EU and UK, the IBR’s export indicators provide a telling insight. 37% of respondents expect to increase their export sales but only 23% expect to sell into new markets suggesting a steadier state post-Brexit than might have been feared.
Constraints/Restrictions
While optimism and outlook indicators are displaying strong positive sentiment, there is a strengthening sense that constraining factors to growth are increasing. Almost half of firms (48%) think that economic uncertainty is a constraint on their business, up 10 percentage points since H1 2021. The most significant changes in terms of constraints have come via energy costs in the labour market. For the first time in IBR’s history, more than half of businesses (55%) cited energy costs as a constraint on their business. For context, the average annual score in this indicator between 2013 and 2020 was 18%.
Similarly, the availability of skilled labour has shifted dramatically in the percentage of businesses citing it as a constraint on their business. 63% now reference the availability of skilled workers as a constraint, up from 37% in H1 2021. The previous highest reading was 50% in H2 2017. This constrained availability of skilled labour is contributing to a corresponding increase in concern over labour costs as a constraint. 56% of businesses now cite this as a constraint, up from 27% in H1 2021. This scale of this change between H1 and H2 suggests that the strength of the labour market has emerged from the pandemic at a much faster pace than expected.
Investment
Investment intentions were up in comparison with H1 2021, but the scale of increase identifies areas of focus for Irish Businesses. 42% of firms expect to invest in R&D, up from 40% in H1 2021. The percentage of businesses intending to invest in Technology fell from 48% to 40%, which may indicate that a lot of technology investment took place to implement home working and ensure business continuity during the early stages of the pandemic. Perhaps reflecting the tight labour market, 55% of business now expect to invest in staff skills, up from 35% in H1.
The Minister presented his first budget in two years from Leinster House amid a period of post pandemic uncertainty with rising cost of living pressures, a continuing housing crisis and the need for action on climate change. He outlined his plans of helping the nation recover from the pandemic, by restoring our public services and living standards, and repairing the public finances.