For a decade, exports have flattered the State’s economic performance. A significant portion doesn’t even emanate from these shores. “Phantom exports”, otherwise known as contract manufacturing [where firms here contract third parties in other jurisdictions to manufacture on their behalf], make up a sizeable 38 per cent of all Irish goods exports.
Now the export boot is on the other foot. Ireland’s headline growth as measured by gross domestic product (GDP) is faltering principally because of a fall-off in multinational exports linked to weaker global growth. After 10 years of continuous growth, the economy is predicted to contract this year.
In its latest global outlook report, the Organisation for Economic Co-operation and Development (OECD) forecasts the economy here will contract by 0.6 per cent in 2023 “as heightened global uncertainties, a weaker outlook in main trading partners and high-interest rates weigh on exports and investment”.
Earlier this month, the European Commission made a similar prediction. We await the Central Bank’s and the Economic and Social Research Institute’s verdicts.
The comedown is also connected with the fall-off in demand for medicines and vaccines in the wake of the pandemic, which resulted in a temporary surge in pharma exports.
The good news is that the Irish economy, as measured by modified domestic demand (a more reliable indicator of underlying conditions here), is expected to continue to grow but at a more modest rate of 2.1 per cent in 2023 and 1.7 per cent in 2024.
The soft landing narrative is pegged to the idea that growth is merely going to slow or stall for a period before picking up again as inflation recedes and interest rates come back down again.
The OECD expects GDP growth across the euro area to come in at a modest 0.6 per cent in 2023, before rising to 0.9 per cent in 2024 and 1.5 per cent in 2025.
If the strength of inflation surprised on the way up, it is coming down faster than many expected. According to the Central Statistics Office’s latest harmonised index of consumer prices, it moderated to just 2.3 per cent in November, its lowest level in 2½ years and close to the European Central Bank’s target rate of 2 per cent.