Back to the future. Ibec Quarterly Economic Outlook. Key indicators

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1 Q3 218 Ibec Economic Outlook Q Ibec Quarterly Economic Outlook Back to the future Economic growth Growth heading for 8% Page 2 Labour market Nearing full employment Page 4 Competitiveness Costs rising quick Page 6 Brexit UK business investment falling Page 8 The Irish economy s rapid growth is providing households with strong growth in real incomes. We have been here before. Previous periods, of rising living standards gave way to rising costs, a lack of focus on productivity and an eventual erosion of the basis for sustainable growth. Our analysis shows that costs for business are rising rapidly, while employment growth is concentrated in lower productivity sectors. These trends will continue, as the economy grows, and the construction industry expands to provide the houses we need. If we cannot avoid a renewal of our boomtime wage-cost spiral, we will crowd out our exporters and see inflation erode the benefits of wage growth. We cannot use a tight labour market, rising oil prices and future interest rate hikes as excuses for inaction on the things we can control - like investing wisely in skilled workers and controlling other areas of our cost base. In a world of global trade uncertainty and volatile markets we cannot afford to be complacent. Population Population continues to grow Page 1 Key indicators Annual % change (F) 219(F) Consumer spending Investment Exports Imports GDP Inflation Employment

2 Ibec Economic Outlook Q Macro-trends Economic growth Ireland s economy experienced strong growth in the first half of 218. All indicators now point to GDP growth of almost 8% this year. Modified domestic demand, which measures all consumption and investment in the economy after adjusting for multinational related effects, grew by 6.2% in the first half of the year. The pace of growth in that indicator over the past four years is now quite similar to the rate seen between 2 and late 24. On the trade side, Ireland s merchandise goods exports experienced strong, but uneven growth. We exported 9.35 billion more of goods in the first eight months of this year than we did in 217. Excluding the BioPharma sector, however, exports have fallen by 4.4% ( 1.6 billion) year-on-year. On the other hand, the resurgent BioPharma sector alone has increased its goods exports by 25% ( 11.6 billion) in the first eight months of this year versus the first eight months of last year. Ibec forecasts that the economy will continue to grow in 219, however, this growth will be weaker than previous years as we are now at a mature phase of the business cycle with the economy close to capacity. These forecasts are based off the assumption that an agreement on Brexit is reached. If this does not happen, 219 will be more challenging. Consumer spending The total value of consumer spending in the economy is on course to grow by 5% in 218, with volumes likely to grow by 3.8%. This is consistent with the higher frequency retail sales data which shows that sales have risen by 4% in volume terms in the first eight months of 218. Much like overall economic growth, this consumer spending pattern resembles similar growth levels between 2 and 24. The major difference between those two periods, and the much higher consumer spending growth between 25 and 28 (where volume grew by 6.8%), is the level of credit drawn down by Irish households. During that period Irish households were borrowing about 2 billion per month to fund spending. By comparison Figure 3 shows that all of the current spending on aggregate is being driven by earned rather than borrowed income. As household balance sheets normalise there is potential for spending to increase further but the trajectory of oil prices, interest rates, rents and other costs will impact on how much this will benefit consumer facing industries. Business investment Trends in business investment continue to be strong despite headline national accounts numbers for investment and imports being impacted by restructuring in global corporates. In total business has invested around 98 million per month, each month, since 215. This is after excluding the significant imports of IP intangibles in the MNE sector and aircrafts for leasing. When it comes to industry the standout performer is the BioPharma sector. The sector experienced a fall of 12% in monthly exports (almost 2 billion) between 212 and 214 due to the patent cliff. Despite this, investment remained steady and since 215 has strengthened significantly. The latest data we have shows that the sector invested 8.9 billion in physical capital assets and software (excluding IP) between Q1 215 and Q The total level of investment since mid-215 has been double its almost linear trend for the eight years before that. This upward shift has been accompanied by a return in the significant growth in exports outlined in Section 1. Feedback from Ibec members suggests that the increase in investment represents both a move up the value chain in reaction to the patent cliff but also a reaction to the 215 global corporate tax reforms introduced at the OECD. BioPharma has not been the only major investor in Irish industry over the past three years the MedTech and ICT manufacturing industries invested 6.5 billion and the indigenous dominated food and beverage sector has invested 1.5 billion over the same period. Figure 1: Modified Final Domestic Demand, 3mma y-o-y % change mn 15% 1% 5% % -5% -1% -15% 1996Q1 1997Q1 1998Q1 1999Q1 2Q1 21Q1 22Q1 23Q1 24Q1 25Q1 26Q1 27Q1 28Q1 29Q1 21Q1 211Q1 212Q1 213Q1 214Q1 215Q1 216Q1 217Q1 218Q1 Figure 2: Volume of consumer spend and lending to households y-o-y % change 1% 8% 6% 4% 2% % -2% -4% -6% Figure 3: Capital investment and exports in Irish BioPharma 16,6 14,6 12,6 1,6 8,6 6,6 4,6 2,6 6 23Q2 24Q2 25Q2 28Q2 28Q4 29Q2 Volume of consumer spend, lhs 29Q4 21Q2 Capital Investment (cumulative), lhs 26Q2 27Q2 28Q2 29Q2 21Q2 211Q2 212Q2 213Q2 214Q2 215Q2 216Q2 217Q2 Lending to Irish households, rhs 21Q4 211Q2 211Q4 212Q2 212Q4 213Q2 213Q4 214Q2 214Q4 215Q2 215Q4 216Q2 216Q4 217Q2 217Q4 218Q2 Exports (quarterly), rhs 1, 8, 6, 4, 2, 218Q2-2, -4, 22,, 2,, 18,, 16,, 14,, 12,, 1,, mn s

3 Ibec Economic Outlook Q Corporation Tax Corporation tax receipts performed strongly in recent years. Since 214, corporation tax receipts have exceeded expectations and came in well ahead of forecasts. In 214 Ireland brought in 4.6 bn of corporation tax revenue and in 219 total receipts will reach 9.6 bn. This was largely due to the OECD s Base Erosion Profit Shifting programme which holds that profits must now align with where substantial economic activity is taking place. While this has had a positive impact on Ireland, there are some potential risks associated with this. Corporation tax receipts are volatile and heavily concentrated amongst a small number of firms. Ten companies account for 39% of total corporation tax revenue. Given the volatile nature of these receipts, Ibec has been calling since 215 for this revenue to be ringfenced and used to finance one-off capital projects. This would ensure sustained growth into the future and would help minimise the potential negative consequences were this revenue to fall. Health spending Ireland s health budget has expanded dramatically in recent years. Like corporation tax receipts, spending in health has exceeded its allocated budget every year since 214, with particularly large overruns in 215 and 218. Around half of these overruns ( 2 bn in total) were accounted for by pay, with the remainder driven by services. In 219, it is expected that health spending will be 28% ( 3.7 bn) higher than 215. This is a significant increase in the space of four years and will place us amongst the highest in the EU for health spending on a per capita basis despite having one of the youngest populations in the EU. Government Balance Despite the large spending increases, government finances are now in a strong position. In 219, the government will run a surplus for the first time since 27. This happened despite significant increases in spending over recent years and corporation tax revenues played a significant role in achieving this. If corporation tax receipts came in as forecast from and everything else remained equal, we would still be running a deficit of 1.6% of GDP, spending 4.6 bn more than we are bringing in. It would be 223 before Ireland would run a surplus had it not been for the revenue overruns. To date, much of the volatility in corporation tax receipts was positive, but were it to move in the other direction, government finances would be left very exposed. Figure 4: Corporation Tax Receipts bn Actual Forecast Figure 5: Evolution of health spending mn 18, 16, 12,677 13,342 13,589 14,19 14, 12, 1, 8, 6, 4, 2, Budget Actual Budget Actual ,67 14,799 15,291 15,977 Budget Actual Current Services Capital Pay Total Figure 6: Government Deficit/Surplus % of GDP 2.% 1.5% 1.%.5%.% -.5% -1.% -1.5% -2.% -2.5% -3.% Budget Actual ,27 Budget % General Government Balance General Government Balance (if CT stayed within forecasts)

4 Ibec Economic Outlook Q Labour market and job polarisation Employment Employment increased by 3.4% in Q2 218 compared to the same period in 217 with 74,1 more people at work. The number of people at work in Ireland has never been higher. In addition, our unemployment rate is now close to pre-crisis levels. From a sectoral standpoint the fastest growing sectors are construction (17,4), accommodation and food (17,4), Education (9,8) and administration and support (9,2). These sectors together make up around 73% of the total increase in employment annually. What is notable is that all these sectors are at the lower end of the productivity spectrum. On the other hand, higher productivity sectors such as professional and scientific services (5,9), finance (3,5) and ICT (1,1) have expanded more modestly. The manufacturing sector on the other hand lost about 4, jobs in the last year. There is a similarity here with previous periods of growth in domestic demand. Labour intensive sectors expanded to meet demand which then bid up wages. Left untended, without offsetting productivity increases, this has the potential to slow the growth of the economy in the medium-term. Labour force participation In recent versions of the Economic Outlook we have shown that a tight labour market is now clearly being experienced by employers in the form of increased staff turnover and rising wage pressures. As we move into 219 there are a number of trends which will be important for employers. We need to consider both the number of people available for work and the number of hours existing workers can work. When it comes to the number of people available for work, Ireland s labour force participation and unemployment rates are closing in on developed world norms. Ireland s participation rates are now roughly the same as the EU average (73.1% v 73.8%) but are lower than the UK (77.6%). If Irish participation rates converged to UK levels, this would bring an extra 143, people into the labour market. However, achieving this would be difficult and would require policy changes (e.g. affordable childcare). In the absence of this, our working age population is expected to grow by between 15, and 2, persons a year. The remainder of labour demand will have to be met from growing net inward migration and increased hours from existing part-time workers. Even if all part-time workers, who are willing to work full-time, converted to fulltime employment, it would satisfy only around six months full-time employment growth. Irish companies will need to spread their net wider for workers over the coming years. Figure 7: Employment s s of workers Construction Accommodation and food Education Admin and support Health Professional services Public admin Transport Finance and insurance ICT Other Wholesale and retail Industry Primary Agri Year-on-year change, s Year-on-year change, % Figure 8: Labour force and employment growth % 14% 12% 1% 8% 6% 4% 2% % -2% -4% -6% , Labour force growth, s Employment growth, s -8% % change Table 1: Labour market summary Employment s annual average Agriculture Industry & Construction Services Total Employment growth (%) Unemployed Unemployment rate (%) ,664 1,723 1,773 2,187 2,255 2, Labour force 2,352 2,394 2,441 Source: Ibec forecasts

5 Ibec Economic Outlook Q Wages There was a significant increase in wages in the first half of 218. Last year hourly wages increased by 1.7% and in the first half of 218 wage growth accelerated to 3%. This growth happened across all sectors, with the strongest wage growth in ICT and financial services. Overall Ireland has the third highest wage growth in the EU15 and the second highest in real terms when inflation is considered. This wage growth is expected to continue into 219. Ibec s HR Update Survey of 339 companies found that 8% of companies were planning on increasing basic pay in 219 and the median increase was 2.5%. Large firms were most likely to increase basic pay, as 93% of firms with more than 5 workers were planning on giving increases compared to 7% of those with less than 5 employees. Figure 9: Hourly wages, H1 218 annual % change 7% 6% 5% 4% 3% 2% 1% % ICT Financial services Professional activities Education Hospitality Construction Manufacturing Total Admin Retail Transport Health Inflation Despite the improvements in the economy, inflation was very low in Ireland for the past six years with the overall cost of living still the same as it was in 28. This was due to a number of factors, such as the depreciation in sterling which reduced import prices, falling oil prices and increased competition in the retail sector driven by the entry of the discount retailers and online shopping. However, inflation picked up in 218 and in September prices were.9% higher than the same period in 217. This was mostly driven by rising global oil prices which increased energy costs. Excluding energy prices, inflation is still only.1% which is very low. Overall, Ibec forecasts inflation will come in at.6% for 218 and will rise to 1.1% in 218 as the oil prices continues to drive up other prices. Figure 1: Inflation y-o-y % change 1.%.8%.6%.4%.2%.% -.2% -.4% -.6% -.8% 218M1 218M2 218M3 218M4 218M5 218M6 218M7 218M8 218M9 CPI excluding Energy Products CPI Employee turnover In Q2 218, 5% of employees were in their current job for less than three months. While employment measures the net amount of jobs created, this measure captures the total share of new hires every quarter and includes not only those who enter the workforce but also those who changed jobs. Overall the share of new hires varies by sector. In hospitality and administrative services, two sectors which typically have a high level of turnover, 9% of employees were in their job less than three months. On the other hand, in public administration and education, less than 3% of employees were in their current job for less than three months. Figure 11: Share of employees in current job less than 3 months, Q % 9% 8% 7% 6% 5% 4% 3% 2% 1% % Hospitality Admin Construction Retail Professional activities Total Transport ICT Financial Services Manufacturing Health Public administration Education

6 Ibec Economic Outlook Q Competitiveness Business services costs In recent times we have drawn attention to growing cost pressures which are facing Irish companies. For most companies in the services sectors labour costs make up around 7% of total costs compared to about 5% in manufacturing. Other costs such as business to business services, energy, transport, and insurance make up most of the remaining cost base. Eurostat s Service Producer Price Index tracks the prices of business to business inputs across several areas such as transport, IT, HR, security, facilities, postage, legal, PR, consultancy, advertising, and warehousing. Since full data was first collected in 212, costs in these business services grew by 11% in Ireland, which is three times the EU average. Over half of that growth has happened in the past two years, partly on the back of rising global oil prices and greater labour and facilities costs facing domestic services firms. Between Q2 217 and Q2 218 the cost of services to business in Ireland increased by 4.3%, but by no more than 2% in any other competitor member state. Interest rates This erosion of competitiveness is broad based with other non-labour cost items such as the cost of borrowing more expensive in Ireland than other member states. Despite efforts to reduce borrowing costs domestically, the spread between Irish SME interest rates and those elsewhere in the Eurozone, has effectively doubled in the past four years. This puts Irish SMEs at a disadvantage in terms of their cost competitiveness when investing. For a 5, debt financed investment the spread would have cost the Irish firms 4,4 more in annual interest payments than a Eurozone competitor in 214, that figure has now risen to 1,355. The greater spread versus Irish government bonds for SME loans than for mortgages or larger firms, suggests that greater risk is attached to SME loans which is unrelated to the market alone. This is due to the property related debt overhang in some sectors such as retail and hospitality along with continuing high failure rates among new and younger companies. Oil prices In recent years Irish companies reliant on transport and energy prices have benefitted from lower costs because of falling global oil prices. The impact of falling oil prices on transport and energy costs have knocked about 1.5% off the price level in the Irish economy between 214 and 217. This trend now seems to be coming to an end. Between October of 217 and October of 218 global oil prices rose by $21 per barrel. This, along with the slide in the value of the euro versus the dollar since the middle of the year has put renewed pressure on companies in transport, distribution, and manufacturing. For the remainder of the year, median forecasts for Brent Crude suggests that there may be some price falls as global supply catches up, followed by prices rising again toward $75 per barrel. There is greater uncertainty over these forecasts in recent months, however. The recent decision of the U.S. to re-impose sanctions on Iran, the potential response from OPEC member states and geo-political tensions in the Middle-East and Venezuela all may serve to put upward pressure on oil prices. Figure 12: Changes in cost of services to business, Q2 218 y-o-y % change 5% 4% 3% 2% 1% % -1% Ireland Greece Netherlands Finland Spain Sweden United Kingdom Italy EU average Austria Belgium Denmark France Germany Figure 13: Interest rate on loans to non-financial companies, up to 1 million spread between Ireland and the eurozone average, 3qma Jan- Jul- Jan-1 Jul-1 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Figure 14: HM Treasury Brent oil price forecasts survey, range $ PER BBL Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Median Highest Lowest Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Cyprus Jan-18 Jul-18 Jul-19 Oct-19

7 Ibec Economic Outlook Q US Economy On the surface, the US economy appears to be performing well. Unemployment is at its lowest level since the 196s and GDP grew by 3.5% in the third quarter of 218. However, there are some risks underlying this. The price-earnings ratio for the S&P 5 is at its highest level since the dotcom bubble, which suggests that equities may be overvalued. This is partially driven by low interest rates which have resulted in more money flowing into equities, increasing prices. This may reverse however, as the Federal Reserve raises interest rates and if it raises rates too quickly we may see a significant overcorrection in the stock market. Another worrying sign is that the yield curve in the US has inverted. This happens when the return on short-run bonds is higher than the return on long run bonds. This tends to happen before a recession as nervous investors seek safe long run bonds, thus increasing the price and reducing the yield. US Tax Reform In 218 the US introduced the first major reform of its Corporation tax regime since The headline rate of corpora-tion tax fell from 35% to 21%, a repatriation holiday was introduced and measures to reduce the incentive to hold IP abroad were implemented. This will make the US tax regime more competitive and may bring some challenges for Ireland. In the first half of 218 global FDI flows fell by 41% compared to the same period in 217. Most of this was driven by a slowdown in US investment abroad. This measure of FDI includes not just green-field investments in plant machinery and equipment but also intra-company funds. The slowdown in FDI was driven by the latter as a result of the repatriation holiday. In the past, US tax law meant that companies could hold profits offshore, but these profits would be subject to high levels of tax by international standards if they were brought back into the US. This resulted in profits sitting outside the US untaxed for many years pending reform of the system. The mandatory deemed repatriation means that these profits are now moving back onshore. This won t have any significant impact on Irelands economy. However, we will need to wait and see what impact the other reforms will have on Ireland. Figure 15: Spread between 1 year and 2 year Treasury Yields Figure 16: Global FDI flows Billion USD H1 217 H Table 2: International economies summary Real GDP, y-on-y % ch Inflation, y-on-y % ch Eurozone UK USA Emerging markets World Source: IMF economic outlook

8 Ibec Economic Outlook Q Ibec Brexit tracker UK economic loss so far The UK based Centre for European Reform have released the best estimate of the impact of Brexit so far on the overall growth of the UK economy. They achieved this by comparing the actual UK growth to a doppelgänger of similar countries weighted by their similarity to the UK in the period before the Brexit referendum. Their findings suggest that the vote has already caused significant economic damage to the UK and that the UK economy is already 2.5 per cent smaller than it would be if the UK had voted to remain in the European Union. From a fiscal point of view the results suggest that the Brexit result is now costing HM Treasury about 26 billion per year, with that cost escalating as time passes. UK consumers In recent versions of this publication we have drawn attention to the impact of growing inflation (on the back of the depreciation of sterling) and weak nominal wage growth becoming a major drag on real income growth in the UK. Despite this, consumer spending has held up somewhat. This is due to UK savers dipping significantly into their savings to continue to fund consumption. The household savings rate in the UK has always been lower than that in the Eurozone, with the spread in recent years varying between 3% and 4%. That spread has increased to 7% since the referendum, with the savings rate of UK households more than halving since 216 from 9.4% to 4.5%. Current Bank of England forecasts expect that nominal wages will increase by close to 3% over the next year and the impact of sterling devaluation on inflation will fade. This, however, relies on a Brexit deal being done. In its absence UK household balance sheets could deteriorate rapidly. UK business investment UK business, in particular the manufacturing sector, received something of a bounce from the sterling depreciation following Brexit. As we noted at the time this was bound to be a temporary bounce, as rising import costs for parts used in production would eventually erode export competitiveness gains. This bounce saw business investment in the UK hold strong in 217, despite Brexit uncertainty. The volume of business investment in both the UK and other EU countries grew by 3.3% in 217. The impact of rising import costs and eroding confidence was seen in the figures this year. EU business investment (excluding the UK) grew by 3.7% in the first half of the year. On the other hand, the volume of investment by UK business grew by only.6%. This uncertainty effect can also be witnessed in the survey data. A recent Brexit survey from the Confederation of British Industry (CBI) shows that 8% of their members now say Brexit has impacted their investment. This is an increase from 36% in October 217. UK firms also reported high levels of planning for Brexit by either stockpiling or moving capacity abroad. Figure 17: UK GDP loss GDP growth relative to 28 Q Q1 9 Q2 9 Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 UK Doppegänger Figure 18: Household savings rates in the eurozone and UK % of disposable income Q1 2Q1 21Q1 22Q1 23Q1 24Q1 25Q1 Eurozone 26Q1 27Q1 28Q1 29Q1 United Kingdom Figure 19: Volume of business investment 214 Q1 = 1 index Q1 211Q1 212Q1 213Q1 214Q1 215Q1 216Q1 217Q1 214Q1 214Q2 214Q3 214Q4 215Q1 215Q2 215Q3 215Q4 216Q1 216Q2 216Q3 216Q4 217Q1 217Q2 217Q3 217Q4 218Q1 218Q2 European Union (without United Kingdom) United Kingdom

9 Ibec Economic Outlook Q Tourism Sluggish income growth and a weaker sterling were key factors in reducing the number of British tourists to Ireland over the course of both 217 and 218. In 217, British tourism numbers in Ireland fell by 5% year-on-year having been on a run-rate of 13.5% annual growth in 215 and the first half of 216. Although there have been some signs of stabilisation in this trend over recent quarters British tourists still spent 3.8% less in Ireland in the first half of this year compared to the same period in 216. This is particularly a challenge for lower margin sectors outside Dublin. As a proportion of their total income from tourism, British tourists are most important for the North West (47%), East and Midlands (36%) and South East (35%) regions. Along with the loss of the reduced rate of 9% VAT, it may be a challenging 219 for rural tourism. Figure 2: Irish tourism numbers y-o-y % change 25% 2% 15% 1% 5% % -5% -1% 215Q1 215Q2 215Q3 215Q4 216Q1 216Q2 216Q3 216Q4 217Q1 217Q2 Great Britain All Countries (ex GB) 217Q3 217Q4 218Q1 218Q2 Diversification in Dairy While many Irish economic sectors have struggled to diversify in the face of Brexit, recent Ibec analysis shows that some firms, particularly those in the dairy sector, are making huge strides in diversifying. For example, over the past 3 years non-uk exports have consistently made up somewhere between 3% and 4% of total Irish cheese exports in any given year. Since 215 the share of our cheese going to non-uk markets has increased to 5%. The amount of Irish cheese going to the UK has remained steady just north of 115,t. In the 12 months to July 218 we sold 42,t more than we did in the same period in 215. About half went to other EU countries. But, most interesting is that 27% went to the Middle East & North Africa and 18% went to Japan. In 214, Ireland accounted for 2% of EU cheese exports to Japan. This share grew to 9% in 218. There is further potential here for Ireland, with the recent EU/Japan trade deal lowering tariffs on cheese sold to Japan from 3% to zero over the next 15 years. UK Exports Last year goods exports to the UK grew by 9% but in the first nine months of 218 they fell by 5.2%. This was driven by a reduction in exports of chemicals, pharmaceuticals, machinery and equipment. This was a common trend across the EU as eurozone exports to the UK fell by 1.3%. However, while overall Irish exports to the UK fell, food exports to the UK grew by 3%. Meat exports grew by 4.9% and while this is positive, it also shows that unlike dairy, this sector is failing to diversify in advance of Brexit (see previous section). This will leave the sector very exposed if no agreement is reached on Brexit. On the other hand, UK exports to the EU grew by 6.3% in the first eight months of 218. However, this was largely driven by the rise in oil prices. Excluding oil products UK exports to the EU remained unchanged in the first eight months of 218. Figure 21: Irish cheese export destinations tonnes 11, 1, 9, 8, 7, 6, 5, 4, Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 UK Non UK Figure 22: Goods exports, August YTD y-o-y % change 2% 15% 1% 5% % -5% -1% UK Total Non EU EU (excl UK)

10 Ibec Economic Outlook Q Housing Population Ireland s population continues to grow. In 218, the population grew by 1.3% with 64,5 more people living in Ireland than one year ago. This was driven by a combination of net inward migration and a natural increase, with the number of births exceeding the number of deaths. From 21 to 215, the natural increase was the key driver of population growth, as net migration was negative with more people leaving the country than immigrating. Now, net-migration has turned positive and is the biggest contributor to population growth. However, it is nowhere near levels seen the last time our labour market was performing this well. In 27, 14,8 more people moved into Ireland than left, in 218 this was only 34,. Net Migration by Nationality Looking at net migration by nationality also highlights some interesting trends. For people from the EU-15 and outside the EU, net migration is now higher than it was in 27. For Irish nationals, net inward migration is now positive, but the number of Irish people returning is only just offsetting the numbers leaving and is significantly lower than in 27. The most notable difference is for nationals from Central and Eastern European countries. Despite improvements in the labour market, net inward migration for these nationalities was 14 times higher in 27 than it is today. It is unlikely this will ever return to previous levels as economic conditions have improved considerably in these countries since 27. As a result, the economic incentive to come and work in Ireland has fallen. Figure 23: Components of population growth Thousand persons Natural increase Net migration Population change Figure 24: Net migration by nationality Thousand persons Irish EU 15 EU Other Nationalities Population Projections The CSO released new population projections which show that the Irish population is set to grow by 36% (1.7 million people) by 251. The Greater Dublin Area will experience the strongest growth while the Border and West will experience the weakest. Over the next 1 years the biggest change will be the number of people aged over 75. While the overall population will grow by 12% from , the share of the population aged over 75 will grow by 52.5%. Ireland s growing population is currently accounting for one third of the overall growth in consumer spending. This will continue as the positive demographic trends will have a positive impact on consumer spending growth in Ireland. Figure 25: Population forecasts 7,, 6,, 5,, 4,, 3,, 2,, 1,,

11 Date for your diary: Ibec Regional Insight Series At this year s regional insight series, we look at what it takes to make our regions better places to live, work and grow and how best to plan for a new era of work. Taking place during the month of November in 7 locations around Ireland, we look at the range of actions needed to attract and retain the investment and talent for growth and prosperity in our regions and the factors that influence regional attractiveness. Ibec campaigns Smarter World, Smarter Work' and Better Lives, Better Business will provide a backdrop to the discussion on the day. With contributions from Danny McCoy, CEO and Maeve McElwee, Director of Employer Relations, Ibec as well as local businesses, these events will provide insight and support to conduct your business in this dynamic society. This series is partnered by Three and Gas Networks Ireland. Dublin 8 November InterContinental, Dublin 4 South East 15 November Mount Juliet Estate & Golf Club, Kilkenny Cork 16 November Fota Island Resort, Cork Mid West & Kerry 21 November Dunraven Arms Hotel, Limerick West 22 November Ardilaun Hotel, Galway North West 23 November Harveys Point Hotel, Donegal Midlands 29 November Hodson Bay Hotel, Athlone To book your place, please visit

12 Ibec Economic Outlook Q Further information Fergal O Brien Director of Policy and Chief Economist T: E: fergal.obrien@ibec.ie Gerard Brady Head of Tax and Fiscal Policy T: E: gerard.brady@ibec.ie Alison Wrynn Economist T: E: alison.wrynn@ibec.ie Web: Twitter: Join the #Ibecambition Ibec Head Office Galway Cork Brussels 84/86 Lower Baggot Street Ross House Knockrea House Avenue de Cortenbergh Dublin 2 Victoria Place Douglas Road 89, Box 2 T: Galway Cork B-1 Brussels E: membership@ibec.ie T: T: BELGIUM W: E: galway@ibec.ie E: cork@ibec.ie T: + 32 () W: W: F: + 32 () E: europe@ibec.ie W: Limerick Donegal Waterford Gardner House Bank Place 3rd Floor, Pier One Quay Street Waterford Business Park Charlotte Quay Limerick Donegal Town Donegal Cork Road Waterford T: T: T: E: midwest@ibec.ie E: northwest@ibec.ie E: southeast@ibec.ie W: W: W: