Analysts say international uncertainty is casting a “dark shadow” on growth prospects

“The invasion of Ukraine, greater uncertainty and a rise in commodity prices are currently casting a dark shadow over the international picture,” said Dermot O’Leary, Goodbody’s chief economist.

Ireland’s economy grew at 13.5 per cent of GDP in 2021, supported by buoyant multinational pharmaceutical and technology exports – and record services exports of 285.6 billion euros – the Central Statistics Office said yesterday.

The headline growth came despite a 5.4 percent contraction in GDP in the last three months of the year, the largest quarterly contraction on record.

Consumer spending led to a domestic rebound, with modified domestic demand – a better measure of the domestic economy which excludes patents and aircraft leasing – rising 6.5 percent.

The central bank recently forecast that GDP growth would average 6.5 percent per year through 2024.

But a “drop” to around 5 per cent in 2022 is now likely, said KBC Ireland chief economist Austin Hughes, as a result of the “threatening global backdrop”.

Ireland has “minimal” exposure to Russia and Ukraine, Mr Hughes said, but could feel some “spillovers” from other EU countries.

Russia accounted for just €1.2 billion of Ireland’s trade in goods in 2021, with 0.4 per cent of goods exports and 0.6 per cent of imports and a very small share of services trade. Trade with Ukraine accounts for less than half of that.

According to the Central Bank, there were €37.1 billion worth of assets issued in Ireland in Irish special purpose vehicles at the end of 2021. Mutual funds hold another €11.5 billion in Russian assets, of which €1.1 billion is in internationally oriented banks.

Companies such as building materials giant CRH and Ryanair have interests in Ukraine, while packaging company Smurfit Kappa and Limerick-based refiner Aughinish Alumina have interests in Russia.

Oil and gas prices hit their highest levels in more than a decade this week as Russian forces pushed further into Ukraine and took control of Europe’s largest nuclear power plant. The price of wheat, a major Ukrainian export, has risen by 40 percent.

“The [Irish] The economy had significant momentum going into 2022, but inflation is now clearly the biggest threat to the growth picture,” said Goodbody’s Dermot O’Leary.

“We believe Ireland will outperform the rest of the euro area, but our expectation of around 6 per cent growth is at risk the longer uncertainty persists.”

Inflation has risen to over 5 percent since last October, hitting a new 20-year high of 5.7 percent (5.8 percent in the eurozone) in February, with energy prices up more than a third year-on-year.

Irish energy imports could double this year, costing the economy around €3 billion and up to three points of GDP, said KBC’s Austin Hughes.

“Beyond these direct impacts, the broader impact on business and consumer confidence will weigh on spending plans,” he said.