Ireland’s economy remains resilient and faces into the second half of 2023 and beyond from a position of real strength, with continuing economic growth, further job gains and inflation beginning to subside, according to EY Ireland’s Economic Eye Summer 2023 Forecast.
After several years of outsized economic growth, EY is now forecasting more moderate growth for the Irish economy, with GDP expected to rise by 4.8% in 2023 and 4.3% in 2024, and Modified Domestic Demand to grow by 3.4% in 2023 and 3.0% in 2024. While growth is moderating in Ireland, it will continue to outperform many economies around the world, exceeding forecasts for the Euro area (0.9% in 2023), the UK (0.4%) and overall global growth (2.7%). In Northern Ireland, EY is forecasting that the economy will expand by 0.3% in 2023, before accelerating to 0.8% in 2024 and 1.6% in 2025.
Ireland’s strong economic performance is a result of a strong and adaptable business base, clever policy frameworks that support and enable success, and a highly skilled and productive workforce. The forecast does, however, sound some notes of caution. European monetary policy decisions will impact the real economy with a delay, while a tight labour market and the threat of underlying inflation remaining ‘sticky’ pose potential risks for an economy where maintaining competitiveness will be key.
Dr Loretta O’Sullivan, EY Ireland Chief Economist, said: “The dust is beginning to settle on the economic shocks triggered by the pandemic and the war in Ukraine and our Summer Economic Eye forecasts solid growth for Ireland over the coming years, albeit at a more moderate pace than the exceptional growth of recent years. Easing inflationary pressures should lend support to spending by households and firms, with further job creation also in prospect. Global uncertainty in the tech and other key sectors, together with tighter monetary policy, are generating some headwinds, but the waning of the energy price shock of last year is a tailwind for households and businesses alike.”
Graham Reid, Head of Markets and Partner, EY Ireland, said: “The Irish economy has demonstrated its resilience and has plenty of strengths to leverage in support of sustainable and inclusive growth, including a skilled workforce, world-class universities and a business friendly environment, all of which are key in terms of attracting and retaining foreign direct investment (FDI) as well as enabling and empowering our world-leading indigenous entrepreneurial talent.”
Last year saw a sharp rise in consumer prices, with inflation running at 7.8% for the year. This significantly elevated inflation has been keenly felt by households, with those on lower incomes among the hardest hit. Headline inflation remained high in the opening months of 2023 but has begun to ease notably. This trend looks set to continue as lower wholesale energy prices feed through to households’ bills and firms’ production costs, together with the impact of tighter monetary policy being felt in the real economy. EY forecasts that inflation will decelerate to 5.8% in 2023 before reducing further to 3.0% in 2024. It will likely take the best part of the forecast horizon to 2025, however, to reach the 2.0% figure that the European and other Central Banks are targeting, and underlying inflation may prove stickier than expected.
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