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It is entirely understandable that the main focus in economic headlines in Ireland (and elsewhere) at the moment is centred on cost of living pressures. In part this emphasises the extent of the turnaround in the wake of the pandemic that has seen generational concerns about a slump in activity and employment largely disappear as 2021 progressed.
However, not all economic news at present is bad news. Looking at the latest inflation and jobs data releases over comparable periods, it is notable that in the two years to January 2021, Irish consumer prices increased a cumulative 4.8% while between the final quarters of 2019 and 2021, numbers at work increased by 6.3%. In terms of the latest ‘headline’ changes, consumer prices increased by 5.0% in the year to January while numbers at work increased by 10.1% between the final quarters of 2020 and 2021.
Having suffered a comparatively severe jobs fallout initially as the pandemic struck, the strength of the turnaround in the Irish jobs market has been altogether more forceful than that seen elsewhere as illustrated in diagram 1. Numbers at work in Ireland at end 2021 were 117k or 4.9% higher than in the first quarter of 2020 when the pandemic struck. In contrast, employment is still below its pre-pandemic level in the US, the UK and the rest of the Euro area.
The pace of job creation did slow somewhat in Ireland in the final quarter of 2021, likely reflecting a combination of renewed Covid-related restrictions in some sectors and skill shortages in others. However, the resilience of the jobs market through the past couple of years testifies to the underlying positive momentum in economic activity and the job-saving success of fiscal supports in the wake of the pandemic.
As diagram 2 below shows, the current momentum in the Irish jobs market is not evenly distributed The pandemic and the structural changes it has prompted have seen sustained employment losses in a number of sectors, most notably hospitality related areas and support services. Some other activities, including construction, are seeing a relatively sluggish improvement while a range of areas that would tend to be significantly associated with the operations of multinational companies as well as healthcare are showing buoyant growth.
This divergence poses notable challenges for policymakers. While ‘overheating’ concerns are clearly confined to a number of sectors, implying that a restrictive fiscal stance is not warranted , equally providing necessary support to other areas must be done in a carefully targetted fashion.
Encouragingly, since early 2020, employment has increased for all age groups, with the strongest improvements among younger age groups. A comparatively modest gain among those aged 35 to 54 may reflect somewhat poorer re-employment prospects among these age groups and is consistent with comparatively downbeat responses in the KBC Bank consumer sentiment survey for this cohort. The turnaround in the Irish jobs market has also been seen across all geographic regions with a possibility that the increased incidence of working from home has translated to stronger employment trends outside Dublin.
A positive aspect of the recent Irish jobs market trend is the fact that since early 2020, the labour force has increased by slightly more than employment (145k v 117k). Unlike the situation in a number of other countries where increases in economic inactivity and ‘the great resignation’ have hinted at a major dislocation of late, the Irish data suggest that increasing opportunity has boosted labour force participation.
The corollary of this increase is an uptick in the unemployment rate from 4.7% in early 2020 to 5.1% at the end of 2021 but with employment increasing by 10% y/y in late 2021, the strength of jobs growth suggests unemployment may again move lower in 2022.
This non-exhaustive information is based on short-term forecasts for expected developments in the economy and financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalised investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a judgment as of the date of the report and are subject to change without notice.