Thomas Lyons 
The Irish economy has been experiencing a series of positive developments despite the challenges posed by a sharp increase in inflation, higher interest rates, and a slowdown in the global economy. The first quarter of the year saw strong growth in tax receipts, a significant jump in new car sales, low unemployment rates, and a rise in purchasing managers’ activity indicators. However, early estimates for the first quarter of 2023 indicate a marked slowdown in economic growth compared to 2022.
Despite this, the Irish economy has been receiving upgrades in growth forecasts from various institutions such as the Central Bank, the Economic and Social Research Institute, and the Department of Finance. GDP is now projected to expand by approximately 5.5% this year, with the domestic economy expected to grow between 2.5% to 4% in the next couple of years. Unemployment rates are also expected to remain low at 4.5% over the next three years, with inflation projected to fall back to around 2%. The government’s budget surplus is expected to double from €8bn in 2020 to €16bn in 2024. Overall, the Irish economy is in a sweet spot.
One of the underlying strengths of the Irish economy is its public finances. The country has transformed into a low-debt, high-savings economy, with significant deleveraging following the financial crisis. The household savings ratio has also risen to over 20%, while the public finances have seen a return to large and rising budget surpluses. High savings ratios have resulted in large balance of payments surpluses, projected to reach 11% of GDP this year by the Department of Finance. This financial stability has allowed the government to cushion the impact of the pandemic and cost-of-living crises, along with record levels of inward investment, contributing to the economy’s strong growth performance.
However, the economy still faces significant constraints, particularly in terms of capacity. The tight labour market, acute shortage of housing, and growing pressures on public infrastructure and services are major issues that need to be addressed. The emergence of a large budget surplus and high levels of savings provides the government with the opportunity to take measures that can ease these constraints and lay the foundation for continued strong economic growth.
In conclusion, the Irish economy has been performing well despite the challenges posed by inflation, interest rates, and a sluggish global economy. Strong financial fundamentals, including low debt, high savings, and large budget surpluses, have underpinned the economy’s strength and resilience. However, capacity constraints need to be addressed to ensure continued growth and prosperity.
