Irish economy to grow 5.4% this year despite inflation at 6.1% – EU

The Irish economy is set to grow 5.4 percent in 2022 and 4.4 percent next year, the European Commission forecasts, well above the EU and eurozone average.

It’s the second-fastest growth rate on the block this year after Portugal, with Ireland set to regain the top spot in 2023.

This is followed by massive growth of 13.5 percent in 2021 due to buoyant pharmaceutical and IT exports during the pandemic.

Modified domestic demand, which excludes volatile multinational transactions, is expected to grow 4.6 percent in 2022 and 3.8 percent in 2023.

Irish inflation will average 6.1 per cent this year, the commission forecasts, similar to the Treasury Department’s estimate of 6.2 per cent and in line with the eurozone average. Inflation will slow to 3.1 percent in 2023, the commission said.

Lithuania, Bulgaria, the Czech Republic, Estonia and Poland will see double-digit price increases this year, the commission said, although average inflation will slow to 2.7 percent in the euro zone and 3.2 percent in the EU in 2023. The target of the European Central Bank is 2 percent.

Growth in the EU of 27 and the eurozone of 19 countries is expected to be 2.7 percent this year and 2.3 percent in 2023, down sharply from previous forecasts due to the war in Ukraine.

“Russia’s invasion of Ukraine is causing untold suffering and destruction, but is also weighing on Europe’s economic recovery,” said the commission’s economics chief, Paolo Gentiloni.

“The war has pushed up energy prices and further disrupted supply chains, so inflation is now expected to stay elevated for longer.

He said strong EU growth of 5.4 percent last year is driving positive growth in 2022, but said the forecast was “surrounded by high uncertainty” due to the Ukraine war.

“Other scenarios are possible where growth could be lower and inflation higher than we forecast today,” he said.

Ireland is only slightly exposed to the war, but growth could be hit by price and supply effects, the commission said in its forecast.

“Ireland’s direct economic exposure to Russia and Ukraine is low as, as a highly open economy, it remains exposed to trade and supply chain links, as well as to rising inflation, which eats into real household incomes.”

Unemployment in Ireland will fall to 4.6 per cent this year and 5 per cent next year, one of the lowest rates in the EU of 27 and below the EU and eurozone average of 6-7 per cent.

Ireland’s budget deficit this year will be the third lowest in the EU as a percentage of gross domestic product (GDP), the EU forecasts.

The forecast also shows that Ireland is just one of four countries, along with Luxembourg, Denmark and Sweden, to record a slight budget surplus in 2023.

Public debt in Ireland is likely to be among the lowest in the bloc at 50.3 percent of GDP this year and 45.5 percent in 2023.

However, the Commission forecasts that private consumption will slow in the short term, growing by 5.7 percent in 2022 and 4.1 percent in 2023.

Investment could also be hit by wartime uncertainties and supply shortages, the commission said, as the construction sector faces labor and material shortages.

“In the current environment, companies in Ireland may be inclined to delay further acquisitions,” reads the forecast.