Ireland’s economic growth will slow significantly in 2023 due to high inflation and weaker consumer confidence, according to the OECD.
(Bloomberg) — Ireland’s economic growth will slow significantly in 2023 due to high inflation and weaker consumer confidence, according to the OECD.
The country will avoid a recession, with exports of multinationals expected to support gross domestic product growth “albeit at a decelerating rate,” the OECD said in a report on Wednesday. It expects GDP growth to slow to 3.8% in 2023 and 3.3% in 2024 from 10.1% this year.
“As inflationary pressures and higher interest rates lower demand, growth in the Irish domestic economy is expected to subdue into next year and similarly, as some of our trading partners experience tough economic conditions, our exports to them will be affected,” Finance Minister Paschal Donohoe said in a briefing following the publication of the survey.
In a separate quarterly report published on Thursday, Ireland’s Economic & Social Research Institute said it expects GDP growth to slump to 3% in 2023 from 10.8% this year as households slow spending and the global outlook worsens.
Domestic demand will be further dented by inflation, which the ESRI now predicts will average 7.1% next year, up from a previous forecast of 6.8%. The ESRI expects modified domestic demand growth — a measure that excludes the impact of some foreign companies — to drop to 2.2% from 8.4% this year. The OECD sees it slowing to 0.9%.
Increased costs will also mean lower investment levels in 2023, in particular impacting the already tight supply of housing, the ESRI noted. It expects completions to decline to 26,000 next year from 28,000 in 2022.
Elevated Debt
While the labor market remains resilient and corporate tax receipts have helped improve public finances, public debt is “elevated” at about $60,000 per capita, well above the EU average, the OECD said. Challenges to Ireland’s long-term growth include spending pressure in health care, housing and addressing climate change.
The organization recommended investment to boost housing supply as well as to speed up reductions in carbon emissions. It also suggested the government’s policy of setting aside €6 billion of potentially non-recurring tax receipts may be continued.
“We need to do this not just because of the risk of what could happen to tax streams in the future, but also because Irish public debt on a per capita basis remains very high,” Donohoe said at the Institute of International and European Affairs in Dublin.
Part of the concern relates to reliance on the information and communications technology sector and pharmaceuticals for corporate tax receipts, highly paid jobs and exports.
Tech contributed more than 15% of Ireland’s total economic value in 2019 compared with 8% in 2009, according to the ESRI. There have been several recent high-profile staff reductions at firms such as Twitter Inc., Meta Platforms Inc. and Stripe Inc., including at their Irish offices.
“While it is a key strength, it is also a key weakness,” Conor O’Toole, an associate research professor at the ESRI, said at a briefing. “This is one of the key elements we’re noting as a potential risk if the ICT sector goes into any sort of prolonged downturn.”
–With assistance from Zoe Schneeweiss.
(Updates with details from ESRI quarterly report starting in fourth paragraph)
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