The Irish economy is set to grow by just 1.5 per cent this year, as a fall in gross domestic product (GDP) last year will “reverberate through 2024″, according to a report by Bank of Ireland.
The bank’s latest economic outlook report revises down its previous projections for growth in 2024 but notes that falling inflation and wage growth should lead to consumer spending growth of 2.9 per cent.
Bank of Ireland chief economist Conall Mac Coille said that a 1.9 per cent contraction of the economy last year “does not reflect a long-term trend” and was driven mainly by issues in the multinational export sector.
The report notes that distortions from the multinational export sector that artificially pushed GDP growth up in 2022, and down in 2023, “have now played out”. These include restructuring in pharmaceutical and ICT sectors post-pandemic, and the export of high-tech goods.
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“In reality, it is a recession in name only as by most other measures, the economy continued a steady rebound last year. We expect solid activity in the indigenous sector where expansions in employment and domestic demand in 2023 should continue in 2024,” he said.
The bank forecasts an overall 3 per cent growth in exports this year and 5 per cent growth in 2025. Following 1.5 per cent GDP growth this year the bank forecasts that GDP will grow by 4 per cent in 2025.
Bank of Ireland’s forecasts are more pessimistic than the Central Bank of Ireland, which is forecasting 2.5 per cent growth this year, and 4.5 per cent next year, as well as the Economic and Social Research Institute which sees 2.3 per cent growth in 2024.
Bank of Ireland predicts that consumer price index inflation will slow to 2.5 per cent this year, and noted that consumer sentiment improved to a 23-month high in January, as inflation eases back — but that the timing and pace of further energy price cuts remain an uncertainty.
The report predicts that the unemployment rate will remain close to 4.5 per cent this year, but could rise if the labour force grows more rapidly due to inward migration.
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Bank of Ireland noted that the “breakneck pace of jobs growth seen in recent quarters is unlikely to continue”, as it forecasts employment to grow 1.6 per cent this year, less than half the 3.8 per cent seen in 2023.
The bank predicts that skills and labour shortages will drive up wage growth to 4.2 per cent in 2024 and that as wage growth outpaces inflation, consumer spending will grow by 2.9 per cent this year, and by 3 per cent in 2025.
The bank predicts that house price inflation will remain in the low single-digit territory this year due to lack of supply, with MyHome.ie reporting asking price inflation of 4 per cent last year.
Bank of Ireland forecasts that housing completions will grow to 34,000 units this year, but will still be “well short of the 40,000 to 50,000 required to satiate demand”.
It forecasts that investment should “bounce back” this year, with core investment spending to grow by 0.3 per cent —weighed down by commercial construction but helped by homebuilding and a 10 per cent rise in public capital expenditure.
Bank of Ireland noted that bottlenecks, capacity pressures and labour shortages are now the “most pressing” issues that could hold back growth in the Irish economy and that implementing the National Development Plan and infrastructural investment is “key”.
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