The Central Bank has today (12 March 2024) published its first Quarterly Bulletin of 2024. On the launch of the Quarterly Bulletin, Robert Kelly, Director of Economics and Statistics said: “Global headwinds and domestic capacity constraints are affecting the growth of the Irish economy. Disinflation has been significantly progressing and external price pressures have largely passed. However, domestic price developments – especially in the services sector – have been more persistent. With moderate growth in the domestic economy anticipated out to 2026, increased focus remains on enhancing supply conditions to bolster resilience and support a sustainable growth in living standards.”
Some key takeaways from the report are:
- Modified domestic demand is forecast to grow by 2.2% in 2024, 1.9% in 2025 and 2.0% in 2026
- Headline inflation has fallen and is expected to average 2.0% this year, though core inflation remains relatively high. Falling to 2% for 2024, 1.8% for 2025 and 1.4% for 2026
- The unemployment rate is expected to average 4.5% out to 2026
- Nominal wage growth of 4.7% per annum on average from 2024-2026
The domestic economy continues to grow in early 2024, but weak external demand and domestic capacity constraints are expected to weigh on the pace of growth over the forecast horizon. Exports produced in Ireland declined in 2023 but should recover in 2024 and beyond, driven by a return to growth in the pharmaceutical trade. Modified Domestic Demand (MDD) is forecast to grow from 2024 to 2026 by 2% per annum on average, underpinned by continuing growth in consumer spending and residential construction. Developments in several forces currently restraining economic growth influence the outlook out to 2026, namely the transmission of monetary policy, sectoral developments in the pharmaceuticals and ICT sectors and capacity constraints in the domestic economy.
Risks to the growth outlook are tilted to the downside, with risks to the inflation outlook broadly balanced. The large supply-demand imbalances that characterised the economy in 2021 and 2022 have been gradually resolved to date in an orderly way with inflation falling, unemployment staying low and wage pressures being contained. Several risks, if realised, could cause the economy to deviate from the current projected path of stable growth and lower inflation. With geopolitical tensions remaining elevated, energy prices could diverge from their current downward trend, putting renewed upward pressure on inflation. A more protracted period of low growth in the global economy than currently envisaged also presents downside risk to the Irish growth outlook. Increases in labour costs above productivity could generate excessive domestic inflationary pressures. Delayed progress in addressing capacity constraints in housing and other infrastructure could generate higher and more persistent price and wage inflation and damage competitiveness. A downturn in the pharmaceutical or ICT sectors would weaken net exports, domestic investment, tax revenue and economic activity more broadly relative to the central forecasts.
(Source: Centralbank.ie)
