The forecast is one of the main themes in the latest economic outlook bulletin from financial think-tank the Economic and Social Research Institute (ESRI), which was published this morning. The positive outlook on the jobs front — the ESRI predicts just over two million of the adult population will be in work by the end of this year — comes despite the think-tank marginally decreasing its overall growth outlook for the Irish economy.
The ESRI currently expects GNP — its preferred unit of measurement, as it excludes the economic contribution of foreign multinational companies — to grow by 4.8% this year and by 4.3% in 2017. Back in March, at the time of its spring bulletin, the Institute predicted growth of 5% this year.
The slight decline is based on a weaker export outlook and general world trade trends; but doesn’t factor in the potential effect of the UK voting, this week, to leave the EU.
Recent CSO data showed that the unemployment rate hit 7.8% in May. The last Government targeted so-called ‘full employment’ — roughly meaning an unemployment rate of under 5% — by the end of 2018, but other commentators have poured cold water on this.
Earlier this month, Davy Stockbrokers suggested Ireland’s unemployment rate is unlikely to dip much lower than 6.5% and that employment levels could be approaching peak levels. It said that “a considerable skills mismatch” — between former construction workers and a growing services-based economy — makes it unlikely the unemployment rate will fall to Celtic Tiger-era rates of under 5%.
It added that addressing the issue will be a key challenge for policymakers in the coming years.
However, even with migration due to add an extra 10,000 or so to the population from next year, the ESRI claims sub-5% unemployment rate levels are possible in the medium term. It points to recent declines in the traditional danger points of long-term unemployed and youth unemployment as real signs of progress. However, the ESRI hangs much of its employment growth hopes on how quickly the construction sector ramps up to meet the 25,000 new house builds, per year, deemed necessary to meet housing demand.
In this regard, it predicts 13,500 new builds this year and 17,500 next year.
Currently, it doesn’t see the 25,000 per year build level being reached until 2019.
It added that if proposals for a site/land tax (as an incentive for underdeveloped or vacant land to be sold to developers) are brought forward from 2019 housing supply could be accelerated.
The Institute said the Government may have to start running budget surpluses — basically save on its spending plans — if signs emerge of the economy overheating again, due to a faster rate of housing supply.