Central Bank cuts 2022 Irish growth forecast by a third amid Ukraine crisis

Regulator has also scaled back 2023 growth forecast to 4.3 per cent

The Central Bank has cut full-year Irish underlying economic expansion forecast by a third to 4.8 per cent as Russia's invasion of Ukraine has "sparked a chain of events that presents significant challenges to the outlook for inflation and growth".

The new figure compares with a 7.1 per cent growth forecast for so-called modified domestic demand that the bank had projected in January, before the war.

The Central Bank has also scaled back its 2023 growth forecast to 4.3 per cent from 5.2 per cent in its latest quarterly economic bulletin, published on Wednesday.

An acceleration in the rate of inflation as a result of the war – with the bank now forecasting an average inflation rate of 6.5 per cent, compared with 4.5 per cent, previously – is likely to weigh on full-year consumer spending following a strong start to the year, investment and exports.


"The Irish economy continues to recover strongly from the effects of the pandemic, but the economic impacts of the Russian invasion of Ukraine will weigh on growth," the Central Bank said in the report. "The outlook has become highly uncertain and depends on how the war unfolds, the effect of current economic sanctions on Russia on the European economy and on any possible further measures that may be taken."

Risks to the inflation rate are “tilted to the upside”, while those surrounding economic growth are skewed to the “downside”, according to the bank

Supply-side shock

While the overall direct trade links between Ireland and Russia and the Ukraine are low, it has resulted in a "global supply-side shock", due to the wider importance of both countries for energy, food and metal commodity markets. While energy suppliers have been proactively passing on soaring wholesale oil and gas prices to consumers, the Central Bank said that food prices were "likely to rise more substantially over the coming months".

Some 65 per cent of all Irish imports of coal, coke and briquettes came from Russia last year, while the country was the source of 25 per cent of fertiliser products. While direct imports are not substantial, wider supply and price effects will transmit through the international markets for energy and fuel, it said.

For Ukraine, the main imports are cereals, with about 13 per cent of the Republic’s maize imports coming from that country.


Meanwhile, the Central Bank warned that labour supply gaps in the construction sector, combined the increasing costs of building as a result of raw-material delays and inflation, “raise obstacles” to the delivery of housing and other infrastructure investment over the short-to-medium term.

The ongoing shortage of Irish housing supply is exacerbated by the fact that the Government expects to welcome 100,000 Ukrainian refugees this year.

“While commencement figures are running at approximately 31,000 on an annual basis, planning and procurement delays, material and labour supply constraints and delays in connecting to public infrastructure mean that it is unlikely all of these will be converted into completions in 2022,” the Central Bank said.

The bank estimates that there will be 24,500 home completions this year, increasing to 29,000 and 33,000 in 2023 and 2024, respectively. “This is a reduction of approximately 3,500 housing units over the forecast horizon compared with the previous forecast,” it said.

The Government has a target for an average of 33,000 new homes to be built annually between 2021 to 2030.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times