IMF: Irish Economy Strengthens with Strong Tax Revenues, Yet Faces Significant External Risks
The International Monetary Fund (IMF) has commended the considerable strengthening of the Irish economy, attributing it to robust tax revenues. However, the IMF’s positive outlook is tempered by the presence of significant external risks.
Following its annual review of the Irish economy, known as an Article IV consultation, the IMF has made several recommendations. These include advocating for the prudent management of public finances to help counter inflation and prepare for potential economic shocks, demographic changes, and the impact of climate change.
The IMF characterises the recent budget as “slightly expansionary” and suggests that a more targeted approach could have achieved similar results while costing less and safeguarding the most vulnerable. The IMF advises a gradual phase-out of one-off cost-of-living measures as inflation subsides.
The IMF projects a 2.5% growth in the Irish economy, measured by GNI, for this year and the next. Meanwhile, it anticipates that GDP growth will moderate to 1.5% this year before rebounding to 2.66% next year. The IMF forecasts inflation to average 5.33% this year, decreasing to 3.2% next year, and ultimately reaching 2% by the end of 2025.
Nevertheless, the IMF cautions that external factors, such as the conflict in Ukraine and the Middle East crisis, could impact these forecasts. It also warns that changes in international corporate tax rules could have more far-reaching consequences than initially anticipated.
The IMF advises the Irish government against stimulating further demand in the economy, as the tight labour market is already limiting economic activity and contributing to core inflation. Additionally, the IMF emphasises the need to streamline the planning process and modernise regulations in Ireland.
The IMF supports the broadening of the tax base and the savings funds outlined in the budget. However, it recommends that the government establish spending rules that extend beyond the current 5% limit.
In the context of climate change, the IMF urges Ireland to accelerate its progress towards key environmental objectives, as it is likely to fall short of its 2030 targets.
Yan Sun, a senior IMF advisor leading the annual review of the Irish economy, acknowledged that, by any measure, Ireland has achieved one of the highest growth rates in the euro area in recent years. However, Sun cautioned that beneath the strong headline figures, there are underlying vulnerabilities.
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