Momentum in the Irish economy builds

Businesses and households are more upbeat with the loosening of restrictions on social interaction and inter-country travel, the latest Bank of Ireland Economic Pulse reveals.

Firms in various business sectors are reporting that their order books are improving and households are more upbeat about the Irish economy and prospects for jobs.

The latest Bank of Ireland Economic Pulse came in at in 89.5 in May 2021. The index, which combines the results of the Consumer and Business Pulses, was 4.1 higher than last month and up 45.6 on a year ago.

“All of this has led us to revise up our Irish GDP growth forecast for 2021 to 5.8pc, from 5pc in February”

With a further loosening of restrictions on social interactions, the resumption of inter-county travel, some sectors emerging from lockdown – the remainder of construction, personal services and non-essential retail (by appointment) returned during the May survey period – and others getting ready for lift-off, the consumer and business mood brightened this month. The increase in opportunities to spend lifted household buying sentiment, while firms saw their order books improve.

Positive indicators

“The May Pulse results show that momentum in the Irish economy is building,” said Bank of Ireland Group chief economist Dr Loretta O’Sullivan. “The headline Economic index is now back above its pre-pandemic level, which bodes well for a pick-up in spending as public health restrictions are lifted.

“A number of other factors will also help put the economy on a surer footing over the coming months, including some unwinding of the involuntary savings households built up during the crisis and the return to growth in the global economy.

“All of this has led us to revise up our Irish GDP growth forecast for 2021 to 5.8pc, from 5pc in February. But as this month’s Pulse surveys also show, post-Brexit trade frictions are adding to business costs and the potential spill-over to consumer prices from this and the unlocking of pent up demand will be something to watch out for as the year progresses.”

Regional sentiment is up across the board.

Three month moving averages:

  • Dublin Pulse:                      84.0 (+8.0 points on the previous survey)
  • Rest of Leinster:               79.7 (+5.8)
  • Munster:                             82.8 (+7.4)
  • Connacht/Ulster:             85.9 (+6.4)

Business sentiment on the rise

Dr O’Sullivan continued: “With some sectors emerging from lockdown and others preparing for lift-off, the Business Pulse rose again this month.”

The Business Pulse stood at 92.7 in May 2021, up 3.8 on last month’s reading and 51.3 higher than a year ago. All four sectoral Pulses were firmer this month as the re-opening of the economy progresses. Less positively though, the May data point to growing inflationary pressures, with 78pc of construction firms, 67pc of firms in industry and 48pc of retailers reporting an increase in non-labour input costs in the past three months.

The Business Pulse stood at 92.7 in May 2021, up 3.8 on last month’s reading and 51.3 higher than a year ago. All four sectoral Pulses were firmer this month as the re-opening of the economy progresses. Less positively though, the May data point to growing inflationary pressures, with 78pc of construction firms, 67pc of firms in industry and 48pc of retailers reporting an increase in non-labour input costs in the past three months. These are all series highs and owe much to post-Brexit red tape (with rising global commodity prices also a factor for some). Moreover, some impact for consumers looks to be on the cards – just over two thirds of builders and almost half of firms in industry and retail indicated that they expect to raise their selling prices in the near term. 

According to Dr O’Sullivan, these are all series highs and owe much to post-Brexit red tape (with rising global commodity prices also a factor for some). Moreover, some impact for consumers looks to be on the cards – just over two thirds of builders and almost half of firms in industry and retail indicated that they expect to raise their selling prices in the near term.

Consumers feel more confident

“The Consumer Pulse rose for a fourth month running in May, with buying sentiment strengthening too,” O’Sullivan said.

At 76.7 in May 2021, the Consumer Pulse was up 5.0 on last month and 22.8 higher than a year ago. Households upgraded their assessment of the economy and prospects for jobs this month as the easing of restrictions continued. They were also more positive about their current finances and with the vaccine roll-out advancing, a third indicated that they expect to spend more on holidays this year compared with last year.

Dr O’Sullivan said that this is a good bit higher than the pre-pandemic average (of a quarter or so) and points to pent up demand, some of which is set to be unlocked in the coming weeks as accommodation services and hospitality re-open.

House prices to increase

“House price expectations remained in firm positive territory throughout the country this month,” Dr O’Sullivan said.

The Housing Pulse rose 4.3 in May 2021 to come in at 112.3. This was 87.0 higher than a year ago and the thirteenth consecutive monthly gain for the index. Some three quarters of households think house prices will increase over the next year as supply continues to trail a long way behind demand and the construction sector struggles with labour, material and equipment shortages (which are putting upward pressure on costs as well as hindering production).

On the rental front, expectations also tracked higher this month, with almost two-thirds of survey respondents now anticipating rent increases over the coming year.

By John Kennedy (john.kennedy3@boi.com)

Published: 31 May 2021

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