2017 will be a key test for growth of economy

It has been a year of “two halves” for the economy, with growth slowing noticeably after the summer, according to the latest analysis from Investec. There is no doubt from a raft of official data that this is correct. What is more difficult to predict, however, is what it will mean for 2017. Most forecasts are for the economy to grow by somewhere over 3 per cent next year, but it would be safe to say that these predictions are surrounded by even more uncertainty than would normally be the case.

On the plus side, there is no doubt that the jobs market has been performing strongly. The latest figures show a strong 2.9 per cent rise in total employment in the latest year, a rise of 57,500.

Elsewhere the data for the domestic economy are a bit more mixed, though still generally positive. Retail sales are running 4 per cent plus ahead of last year, though the pace of new car sales growth has fallen sharply. Tax revenue is roughly on target, though again the pace of growth has slowed markedly after the summer.

Such is the momentum in the economy that continued growth next year, albeit at a slower rate, seems a reasonable prospect. The big question, however, is the impact of the rapidly-changing international environment. Who knows, for example, what will happen to sterling or how events will play out after Britain triggers Article 50 talks to leave the EU. Then there are the uncertainties caused by the Trump presidency and by next weekend’s Italian referendum.

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The Investec analysis takes a reasonably upbeat view. Recent data, it argues, suggests that manufacturing and construction have both started to bounce back from the shock caused by the Brexit vote, while the services sector remains in positive territory.

Growth of 3 per cent plus – Investec is looking for 3.4 per cent – would be likely to keep employment growing and the Government on track to meet its targets. If it falls to 2 per cent or below, however, things could start to go off track. The Government has said it wants to return Ireland to normal, steady growth. 2017 will be a key test.