The Irish economy is experiencing a slowdown after a period of rapid expansion following the Covid-19 pandemic, according to the Economic and Social Research Institute (ESRI), a leading think tank. The ESRI has revised down its growth forecast for the domestic economy this year from 3.5% to 1.8%. This revision is attributed to inflation, rising interest rates, and falling demand for some exports.
Despite the downward revision, the ESRI noted that the Irish economy is still operating at capacity. It also stated that low unemployment levels are likely to be maintained in the foreseeable future. The labor market continues to perform robustly, with unemployment stabilizing at approximately 4% over the past year, indicating that the economy is close to or at full employment.
The ESRI emphasized that the slowdown in growth is mainly driven by external factors such as international trade, rather than domestic economic activity. The think tank explained that the domestic Irish economy is currently operating at capacity, especially in employment-intensive sectors like construction.
To measure Irish domestic output accurately, the ESRI uses a measurement called Modified Domestic Demand (MDD), which strips out the distorting impacts of multinational companies. Typically, Gross Domestic Product (GDP) overstates the growth rate of the Irish economy. However, the ESRI clarified that currently, GDP is not overestimating growth.
According to the ESRI’s forecast, modified domestic demand is expected to grow at 1.8% in 2023, while GDP is projected to decline by 1.6%. This shows that the domestic activity in Ireland is still vibrant, despite the overall growth slowdown.
The ESRI’s announcement comes as the Irish government prepares to announce its budget next week on 10th October. The budget will include core spending increases of €5.2bn (£4.4bn) and additional temporary spending, such as assistance with energy costs. Irish Finance Minister Michael McGrath has identified four priority areas for the budget: cost of living, housing, competitiveness, and long-term financial planning.
The Republic of Ireland is expected to run significant budget surpluses in the upcoming years due to the corporation tax windfall from multinational companies. However, despite the country’s strong economic performance, the governing coalition is facing challenges in the polls. High housing costs and strained public services have left many people feeling excluded from Ireland’s prosperity.
In conclusion, the ESRI’s revised growth forecast for the Irish economy highlights the impact of external factors such as inflation, rising interest rates, and declining export demand. However, the domestic Irish economy is still operating at capacity, and low unemployment levels are expected to continue. The upcoming budget announcement will address key areas such as the cost of living, housing, competitiveness, and long-term financial planning.