Economy can weather the immediate storm but longer-term competitiveness challenges could restrict potential

The economy has rolled from punch to punch over the last number of years, prompting a necessarily reactionary approach to economic issues. 2023 has started with a similarly uncertain outlook. Business and consumer sentiment continues to suggest more headwinds than tailwinds. Key economic indicators are expected to slow further, including the hitherto buoyant job market. That said, Ireland is expected to narrowly avoid recession in 2023 and, relative to economic outlooks for other EU states, the UK and globally, there is reason for Ireland to be cautiously optimistic. The recent 'Windsor Framework' agreed between the EU and UK is a further positive and should contribute towards better trade conditions on the island of Ireland.

Inflation is expected to decline from recent highs over the course of the year. However, there is a risk that inflation could be stickier than expected for the first half of 2023 as ongoing uncertainty, particularly around energy costs, continues.

from 63% in H1 2022. Such sentiment around talent is concerning, and perhaps already evident in the technology sector which is experiencing job losses. As outlined on page 4 of this issue, it has been reported that the government received over 40 early warning notices regarding potential job cuts across Ireland in late 2022. While these warnings may not lead to job losses, it does demonstrate the uncertainty in the economic outlook.

Irish businesses also expect the ongoing economic situation to impact on exports and international trade. In this period last year, 37% of Irish businesses expected to increase their exports – just 26% feel the same this time around. Just 18% expect to see an increase in the number of countries they sell to in the coming 12 months, while only 24% expect to grow revenue from non-domestic markets.

The cost of doing business is a rising concern for Irish companies. Ireland is among the top three countries globally in terms of worries about energy costs, with 69% of Irish businesses now citing them as a key constraint. Labour costs are also a major concern as cited by 58% of businesses, up from 27% just two years ago.

Housing impacts on competitiveness

Increasing business fears

Grant Thornton’s latest International Business Report, which gathered the thoughts of mid-market businesses globally during the second half of 2022, has reported that only 56% of Irish businesses are optimistic about the outlook for Ireland’s economy over the next 12 months, compared to 85% in the same period in 2021. The dip in optimism is matched by a downward trend in businesses who expect revenue to increase in the coming 12 months. Only 56% of Irish businesses are expecting an increase in comparison with 60% in H2 2021 and 77% in H1 2022. The report also finds that just 58% of businesses are expecting to increase investment in talent over the coming 12 months. This has declined

Housing has long been identified as a key competitiveness constraint. The extent to which this is now impacting on economic performance has been outlined in Ibec’s January 2023 ‘Better Housing, Better Business’ report1 which noted that in a CEO survey, over 70% of companies identified the availability of housing for staff as a challenge to their business operations in 2023, with 30% identifying it as a major challenge. Over 27% of businesses identified the impact of housing availability on employees as one of their top 3 external priorities for their business. Ibec has cited an inadequate supply of affordable housing as the single largest impediment to attracting and retaining talented workers, without whom business investment and expansions are not possible.

Businesses have shown great resilience over the course of the pandemic, and in the face of the most recent energy and inflation challenges. As the economy hopefully begins to move beyond the phase of reacting to shocks, key competitiveness challenges will require a concerted effort to address.

1 https://www.ibec.ie/connect-and-learn/media/2023/01/27/housing-challenges-harming-irelands-attractiveness-and-competitiveness

Dublin Labour Market Concerns Linger

Tech Woes Continue

The Big Tech slowdown of late 2022 has continued in to the first months of 2023, with a series of companies announcing job cuts globally – many of which will affect high paid jobs in Dublin. Microsoft has announced job cuts of 120 at its Leopardstown EMEA hub, while Salesforce – which is due to re-locate to its new EMEA headquarters in Spencer Place this month – is laying off 200 staff in the Capital. Further significant job losses are feared in Google, Dell, Amazon and PayPal, each of which has a Dublin operation and plans to reduce global headcount by between 5% and 7%.

Wider Labour Market Concerns

The trend of job losses in the wider economy, including tech, may be set to continue. Bloomberg reported in January that the Department of Enterprise, Trade and Employment had received 41 separate early warning notices of potential job cuts across Ireland in the final months of 2022. Only eight of these notices – which are issued by IDA Ireland and Enterprise Ireland – had become public as of January, thus sparking fears that further cuts may be forthcoming in the first half of 2023.

Commercial Property Side-Effects

The slowdown in the tech sector is borne out in Dublin’s commercial property market. According to CBRE, a total of 48 new commercial property transactions were closed in Dublin City in Q4, and the profile of new tenants is notable. Only two of the top 10 deals in the quarter involved tech sector companies, with the majority involving professional, financial, pharmaceutical, and public sector tenants.

Commercial vacancy rates in the Capital also increased across 2022. CBRE statistics show that the overall vacancy rate in Q4 was 11%, which increased to 14% when ‘grey space’ (offices available to sub-lease) was included. This is reflective of vacancy rates in the suburbs and Dublin 2/4 which have doubled since prepandemic Q1 2020, as depicted in the chart.

Argos Exits Ireland

The catalogue retailer, Argos, sent shockwaves through the Dublin retail sector in January with the announcement of its exit from Ireland. All 34 of its Irish stores – including nine in the Capital – will be closed by June of this year, with the loss of 580 jobs nationwide. This is a setback for the bricks-and-mortar retail sector in Dublin which is still recovering post-pandemic, and facing stiff competition from online retailers.

Re-Opening of a Dublin Institution

The Clerys building on O’Connell Street has re-opened following a comprehensive redevelopment, providing a timely fillip for the city’s main thoroughfare. The building and wider site, which housed the famed Clerys department store until its closure in 2015, has undergone a transformation to now accommodate retail, office, hotel and rooftop hospitality spaces. The iconic Clerys clock has also been restored as part of the rejuvenation of this cultural institution.