Brussels is tipping Ireland to escape the worst, even as the EU flirts with recession

The European Commission’s latest economic forecast shows that Ireland’s domestic economy will grow by just 2 per cent next year, a sharp slowdown from an estimated 8.6 per cent this year.

It’s a little more dovish than the central bank and other official forecasts, but not as dovish as Treasury Secretary Paschal Donohoe.

He warned yesterday that the “risk” of a recession in Ireland “could materialize” sometime next year, with growth of just 1 to 1.5 percent.

“Mathematically, it’s possible that you have declining growth in a quarter or two, and technically it could be a recession,” said Kieran McQuinn, a research professor at the Economic and Social Research Institute (ESRI).

“The prospect of an international recession next year appears to be growing, meaning there’s a greater likelihood that it could have a negative economic impact here.”

The EU as a whole is in a worse position as gross domestic product (GDP) effectively grinds to a halt next year — 0.3 per cent in the EU and eurozone, despite being revised to more than 3 per cent this year.

In Ireland, GDP for 2022 has been revised upwards to 7.9 per cent – below growth of the domestic economy – although it is expected to slow by more than half to 3.3 per cent next year.

“Exports, particularly from multinationals providing medical equipment, pharmaceuticals and information and communications services, remain the driving force behind Ireland’s very strong economic growth,” said the European Commission in its Winter Economic Forecast released yesterday.

“These sectors are widely expected to remain resilient and supply difficulties have reportedly eased.”

However, the EU forecasts a sharp slowdown in Ireland’s job growth next year to 0.8% from 3.1% in 2022.

Despite this, unemployment will rise only slightly and is expected to remain close to historic lows of well below 5 percent.

The commission’s forecast doesn’t include recent announcements of job cuts by tech giants like Twitter, Stripe and Meta, which the bloc says are unlikely to boost unemployment given the scale of job vacancies in the broader economy.

“[The job cuts] This was followed by a very, very significant – but also extremely rapid – increase in employment in this sector,” said Declan Costello, Deputy Head of the Commission’s Economic Directorate.

“Clearly, the job losses will be extremely disruptive and upsetting for those affected. I think that hopefully most if not all of these displaced people will be able to find employment elsewhere in the economy,

The Commission’s general concern is how governments will react to rising energy prices, as it fears another round of budget giveaways could push prices higher – meaning more rate hikes by the European Central Bank (ECB).

Inflation is expected to peak later this year, averaging 8.3 percent in Ireland and 8.5 percent in the euro zone.

Irish inflation is likely to fall back to 6 percent next year and the euro zone to 6.1 percent, the commission believes.

Ireland has the space to invest after the end of the spring’s temporary energy support. The budget is expected to be in surplus this year and next, along with Cyprus as one of the only two countries in the EU.

Paolo Gentiloni, the commission’s economics chief, said this week he was “completely convinced” of Mr Donohoe’s “prudent” budgetary strategy.

“If the crisis continues, I think the government will likely extend payments,” said ESRI’s Kieran McQuinn.

“Even if growth then slows, public finances are still in a very strong position.”

But alongside the European Central Bank (ECB), the Commission is urging governments to be more selective about their spending and “target” action at those who need it most.

“These measures are costly,” said the commission’s Declan Costello.

More targeted measures “will ensure that not only are they more affordable, but that the ECB’s overall fiscal stance helps bring inflation rates down, which benefits us all,” he said.