The Economic and Social Research Institute (ESRI) has slashed its growth forecast for the Irish economy on the back of a marked slowdown in multinational exports by the pharma sector.
In its latest quarterly assessment, the think tank said it now expected the economy here to grow by just 0.1 per cent in gross domestic product (GDP) terms this year, down from a forecast of 5.5 per cent as recently as March.
Reduced global demand on the back of inflation and tighter financial conditions was feeding through to export activity here, it said. “Growth in exports is now expected to increase at a reduced pace, largely due to declines in pharma-related goods,” the institute said.
“The pharma sector seems to be experiencing a downturn in terms of its trade performance,” the ESRI’s Kieran McQuinn said. “Whether that’s down to just a couple of firms or whether it is a general trend, that’s something which really only the next couple of quarters will tell us,” he said.
The oversized impact of pharma exports on headline GDP illustrates the concentration risk multinationals pose to the Irish economy, his colleague Conor O’Toole said.
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The ESRI’s downgraded growth outlook comes on the back of two consecutive quarters of negative growth here, which has placed the Irish economy in a technical recession.
“Given Ireland’s small, open economy, this moderation in headline indicators is not at face value surprising,” it said. “The outlook for the global economy deteriorated towards the end of 2022, given the persistent inflationary pressures in many large economies, global political tensions and potential trade fragmentation, and tighter financial conditions.”
The institute noted, however, that the more reliable gauge of domestic economic conditions – modified domestic demand (MDD) – was continuing to “grow robustly” and was expected to expand by 3.5 per cent this year and 4 per cent in 2024.
However, the ESRI said “economic headwinds such as rising interest rates, slower-than-expected global trade and persistent inflation are clouding the international outlook”.
While it expects headline inflation in the Irish economy to fall to 5 per cent this year and to 3 per cent next year, the ESRI warned that if the current rise in wage growth passed “through to wage-based price increases, a higher-for-longer interest rate cycle will likely be needed to address inflation”.
Rising interest rates were also likely to act as a drag on the demand and supply sides of the housing market. It warned the continued challenges being faced by key sectors to meet labour demand may escalate capacity challenges in the economy and reduce key outputs, such as housing completions.
Due to slower commencement activity in 2022, it predicted housing completions would not reach or surpass the almost 30,000 units achieved in 2022. However, a pickup in commencement activity in recent months would drive and increase in supply in 2024, it said.
