The Economic Tea Leaves For 2022
Despite a second winter of Covid gloom, economic forecasters are bullish about the year ahead. The view from Ibec, the lobby group, is that labour shortages, limited spare capacity and stretched global supply chains are the main barriers to business expansion.
According to Gerard Brady, Ibec chief economist, from a business perspective 2022 is going to be about managing strong demand, navigating relative price changes, and planning for significant labour market challenges.
He notes that employment data, adjusted to strip out PUP recipients, shows 2.4m people currently at work, the highest in the history of the state. If productivity and economic growth return close to their pre-Covid levels, Brady estimates that total demand for employment is likely to run at around 60,000 workers a year from 2022 to 2025.
“A significant productivity challenge lies ahead,” Brady adds. “Only through improved productivity growth can companies - particularly those with low margins - afford greater increases in labour costs. Alternatively, they can reduce their reliance on additional workers through investment in robotics or automation, or other innovations in digital services which reduce the need for labour.”
This view is echoed by Graham Reid, head of markets at EY. “Wage pressures will likely ramp up in 2022 as the labour market tightens and employees gain more choice,” says Reid. “Employers will have to think creatively to attract and retain top talent, which may mean offering different types of contracts, blended working locations, and a renewed focus on core values.”
Broker and wealth manager Davy is optimistic about consumer spending in 2022, predicting that it will move above pre-pandemic levels by Q1 and expand by 7.3% for the year. Underpinning the forecast is rising average earnings, up 5.4% in the year to Q3 2021.
Davy economist Conall MacCoille notes that credit and debit card spending in November was at its highest level since the pandemic began. “This chimes with buoyant VAT receipts of €15.2bn in the first 11 months, up 2.3% on the same period in 2019,” says MacCoille. With the inflation buffer of elevated household savings, MacCoille expects consumer spending to be 4% above prepandemic levels by end 2022.
What could derail expectations? Extended Covid restrictions or lockdowns are an obvious threat. State think-tank ESRI also references the ongoing Brexit imbroglio, which just might escalate to a full-on trade war between the EU and the UK. Inflation in a range of 3% to 4% is here to stay too, say the experts, and that eventually eats into demand and raises the prospect that the ECB will raise policy rates sooner than anticipated.