European Commission doubles growth forecast for Irish economy

Irish economy expected to grow by 14.6% as consumption and exports rebound

The European Commission has doubled its headline growth forecast for the Irish economy to 14.6 per cent, while warning that inflation – already running at 5.1 per cent – will increase further next year.

In its Autumn Economic Forecast the commission said the Republic would experience strong growth in 2021, driven by multinational exports and supported by a domestic recovery.

“Private consumption is rebounding as households’ saving patterns normalise, while domestic investment – particularly in construction – is expected to register robust growth over the forecast horizon,” it said.

The “very high” vaccination rates allowed the Government to further ease Covid-19 restrictions in late October, which was likely to spur private consumption, particularly of contact-intensive services, it said.


The commission forecast the Irish economy would grow in GDP (gross domestic product) terms by 14.6 per cent this year, moderating to 5.1 per cent in 2022 and 4.1 per cent in 2023.

It said modified domestic demand, a better indicator of the economic activity on the ground, returned to pre-pandemic levels in the second quarter of 2021, and was expected to expand by 7.3 per cent this year, 5.3 per cent in 2022 and by 3.2 per cent in 2023.


However, it warned that inflation had picked up, and is projected to increase further in 2022, driven by recovering demand and cost pressures from supply bottlenecks.

“While energy was by far the largest driver, services inflation has also picked up amidst reopening and simultaneous hiring in the sector,” it said.

These drivers are expected to persist well into 2022, thereby temporarily accelerating inflation, before price pressures gradually dissipate in 2023,” it added.

Separate figures from the Central Statistics Office (CSO) indicated headline inflation in the Irish economy rose to a 14-year high of 5.1 per cent last month.

The commission’s forecast also predicts that the State’’s unemployment rate will remain elevated at 7.5 per cent this year, before falling to 6.8 per cent next year and 6.2 per cent the following year.

On the public finances, it said Ireland’s general government deficit is forecast to reduce to 3.2 per cent of GDP in 2021 from 4.9 per cent in 2020.

“Revenue growth is expected to be broad-based amidst a positive surprise in corporate income tax receipts as of September 2021,” it said.

The Government’s tax haul this year has been boosted by the continued strong performance of corporation tax, which generated €9.5 billion for the 10 months to the end of October, €2 billion above profile.


“While investment activities of multinational companies remain volatile, they are assumed to follow a much more subdued trend compared to their surge in previous years, which will also lower imports in 2021,” the commission said.

On the bloc as a whole, the commission said the euro zone economy will grow faster this year than previously expected as it recovers from the pandemic-induced recession and will continue to expand strongly in 2022, with deficits and public debt falling.

The commission said GDP in the 19 states sharing the euro would grow 5 per cent this year after their economies contracted by 6.4 per cent in 2020.

"Our measures to cushion the blow of the pandemic and to ramp up vaccinations across the EU have clearly contributed to this success," European Commission vice-president Valdis Dombrovskis said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times