Central Bank Forecasts Irish Economic Growth Despite Anticipated Decline in 2023 GDP; Inflation Expected to Rebound to 2.1% by 2025
The Central Bank has projected an overall decline in GDP for the year while anticipating growth in the Irish economy. The latest quarterly report for 2023 highlights a forecasted increase of 1.5% in modified domestic demand, encompassing consumer spending, government expenditure, and adjusted investment, with predictions of 2.5% growth in 2024 and 1.9% in 2025.
The report notes a significant decrease in inflation, attributing it to the alleviation of externally driven price pressures, including energy costs. The Irish economy is described as transitioning into a phase of growth aligned with its medium-term potential. The bank anticipates a more gradual pace of disinflation over the next two years due to diminishing momentum in domestic economic activity and the effects of tighter monetary policy.
Despite economic complexities, the Irish labour market is termed “remarkably resilient,” with low vacancy rates and the creation of more jobs. Wage growth is increasing in response to tight labour market conditions, aiming to reverse real wage declines since 2021. However, the report highlights disparities in inflation and disposable income growth across households, particularly lower-income households.
Unemployment is expected to rise slightly to 4.8% in 2024 but remain below 5% until 2026. Cross-border exports weakened, primarily in the pharmaceutical and ICT manufacturing sectors, leading to a decline in GDP. The growth outlook is uncertain, contingent on the recovery of the pharma and ICT manufacturing sectors in the coming year.
Addressing government policy, the Central Bank recommends avoiding actions that could disrupt the gradual disinflation expected in the coming years. The report emphasises the opportunity to balance domestic demand and supply conditions while addressing critical needs in housing, infrastructure, and the imperative to decarbonise the economy. The bank underscores that GDP may not accurately reflect economic conditions, advocating for reliance on more accurate indicators such as modified domestic demand and employment rates.
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