Ireland’s economy is expected to experience moderate growth compared to previous years, but it is still projected to outperform other economies in the eurozone, according to a new forecast by professional services firm EY. The forecast predicts that gross domestic product (GDP), which measures multinational activity in the economy, will rise by 4.8% this year and 4.3% in 2024. This is a significant decrease from the approximately 12% GDP growth seen in 2022. Despite the moderation, EY Ireland’s chief economist, Loretta O’Sullivan, remains optimistic about Ireland’s growth prospects.
Ongoing challenges, such as soaring energy prices and inflation-driven interest rate hikes, have affected multinational companies, particularly those in the big tech sector that have a significant presence in Ireland. However, the economic environment is becoming less volatile, with energy prices and inflation cooling since last year. Furthermore, interest rates are expected to reach their peak soon, as the European Central Bank is set to meet on Thursday. EY’s forecast also predicts that inflation will reach 5.8% this year but will return to 2% by 2025.
It may take some time for GDP to reach the levels seen in previous years. The IDA, the State body responsible for attracting foreign direct investment into Ireland, noted at the end of last year that momentum in the multinational sector is expected to slow in the second half of this year. Despite this, EY’s report forecasts that modified domestic demand, a reliable indicator of the domestic economy’s fortunes, will grow by 3.4% in 2023 and 3.0% in 2024.
EY also anticipates tight labor market conditions in the coming years, with employment expected to increase by 2.8% this year before moderating to 1.5% in 2024. While a tight labor market can have risks in terms of overall competitiveness, particularly if wage growth becomes detached from productivity growth in the long term, Ms. O’Sullivan remains positive about the potential for continued growth in the Irish economy.
In conclusion, EY’s Economic Eye Summer 2023 Forecast predicts moderate growth for Ireland’s economy in the coming years. While the pace of growth may be more moderate than in recent years, Ireland is still expected to outperform other economies in the eurozone. Ongoing challenges faced by multinationals, such as soaring energy prices and inflation-driven interest rate hikes, are gradually being mitigated. The forecast also indicates that GDP may take time to return to previous levels, but modified domestic demand is expected to grow steadily. With tight labor market conditions anticipated, there are potential risks to overall competitiveness, but the outlook for Ireland’s economy remains positive.