The Irish economic outlook suddenly looks much brighter as falling inflation, an improving global environment and higher production in both the multinational and domestic sectors point the way to robust growth.
avy doubled its 2023 GDP forecast to 6.9 percent from 3.5 percent as better-than-expected growth data late last year signaled the positive momentum would continue.
The stockbroker said GDP growth of 3.5 percent in the fourth quarter of 2022 and lower energy prices indicated Ireland’s recovery from the Covid crisis would continue and a recession would be avoided.
“Most countries would be happy to see GDP growth at 3.5 percent for a full year, let alone a quarter,” said Davy chief economist Conal MacCoille.
“A lot of this is the growth of the multinational sector, but the recovery of the domestic sector is far from complete. If lower gas prices are passed through to consumers, inflation will be significantly lower and spending should recover.”
Mr MacCoille said he expected consumer spending to rise 2.2 per cent this year as inflation continued to ease from record highs in 2022. He added that the risk is on the upside in his forecast for the domestic sector.
Davy forecasts an average inflation rate of just 4.7 percent for all of 2023, meaning readings would need to fall below 3 percent by the most recent quarter, which would support an expansion in spending. Tuesday’s CSO flash estimate of inflation for January was 7.7 percent.
Mr MacCoille said Ireland’s GDP figures are still “a little far from reality” due to the heavy influence of imported intellectual property assets by multinationals. But IDA reports of strong foreign direct investment flows supported a broader growth story, he said.
On Tuesday, the International Monetary Fund also raised its outlook for global economic growth for the first time in a year, forecasting that most of the world – except Britain – would avoid a recession in 2023.
“The outlook has not worsened this time, which is good news in itself,” said chief economist Pierre-Olivier Gourinchas. The fund lowered its 2023 outlook three times in the past year. “But that is not enough. There are still some challenges on the way to a sustainable recovery that is comprehensive and long-lasting.”
However, the risks are more balanced than in October, Mr Gourinchas said. One upside risk is stronger consumption, particularly in services, fueled by pent-up demand in tight labor markets and fiscal support from the pandemic. Conversely, given the shift in spending towards services, inflation could fall faster than expected, which would allow central banks to be less tightening.
“We are far from any sign of a global recession,” Gourinchas said.
That view was bolstered by flash euro-zone GDP figures on Tuesday, showing that the euro-zone economy avoided a contraction in the final quarter of last year, even as household spending contracted.
Ireland’s robust growth performance was credited with propelling the eurozone to 0.1% growth rather than stagnating at 0%.
“Eurozone growth would have fallen to 0 percent if Ireland had not been included,” said Bert Colijn, senior economist at ING.
Additional coverage, Bloomberg
https://www.independent.ie/business/jump-in-gdp-on-the-cards-as-fears-of-recession-fall-42322048.html Rising GDP on the horizon as recession fears recede
