The Republic’s economy is expected to grow again in 2023, albeit at a more moderate pace than in recent years, EY Ireland has said. In its latest Economic Eye report, the Big Four accountancy firm said it expects the gross domestic product (GDP) in the Republic to grow by 4.8 per cent this year and 4.3 per cent in 2024, down from 9.4 per cent in 2022.
Northern Ireland’s economy, as measured by gross value added, is expected to expand at a rate of 0.3 per cent this year, improving to 0.8 per cent next year and 1.6 per cent in 2025. However, the market for talent is expected to remain challenging for businesses on either side of the Border, according to EY Ireland, while the threat of “sticky” inflation poses potential risks for the Republic in particular.
While Central Statistics Office data published last week showed the economy entered technical recession — defined as two consecutive periods of negative growth — in the early part of the year, output actually increased across a range of important sectors, including information technology, financial services, construction and hospitality.
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“Looking ahead, easing inflationary pressures, further job gains, and infrastructure, digitalisation and decarbonisation agendas, should support economic activity, even as higher borrowing costs work in the opposite direction and trading partner growth remains relatively subdued,” the report’s authors note.
Headline inflation in the Republic is forecast to fall back from an annual rate of 7.8 per cent in 2022 to 5.8 per cent this year, easing pressure on households. However, the professional services giant warned that it is likely to take until 2025 for the rate of consumer price growth to return to the European Central Bank’s target of 2 per cent.
EY has also warned that the process “may be bumpy” as temporary support measures, such as the reduction in fuel duties, are phased out. “There is also a possibility that underlying inflation, which excludes food and energy, is stickier than anticipated given the tight labour market.”
But the report highlights the sharp rebound in employment on both sides of the border in the aftermath of the pandemic with unemployment rates “in or around historic lows” in either jurisdiction.
Flexible employers?
“Labour market conditions are projected to stay tight in the period ahead, with further employment growth and only a small uptick in the unemployment rate forecast,” said chief economist at EY Ireland Loretta O’Sullivan.
“In this context, measures to boost the labour force will be key, such as increasing the participation rate. Upskilling and retraining, as well as employers offering flexibility, will be important in ensuring Ireland can continue to attract workers to meet any skills gaps.”
Dr O’Sullivan said the forecasts indicate that the “dust is beginning to settle on the economic shocks triggered by the pandemic and the war in Ukraine”.
However, she added: “Global uncertainty in the tech and other key sectors, together with tighter monetary policy, are generating some headwinds, but the waning of the energy price shock of last year is a tailwind for households and businesses alike.”
