The latest quarterly commentary from the Economic and Social Research Institute (ESRI) strikes a relatively upbeat tone for 2024. After ups and downs in the wake of Covid-19, it says that all the main indicators will be positive this year, with exports returning to growth, investment rising and consumer spending moving ahead. Overall growth in the domestic economy of 2.3 per cent is modest enough, but would be a reasonable outcome as households emerge from the cost-of-living crisis.
The figures provide some encouragement for the Government, with unemployment expected to remain low and the public finances set to be in strong surplus. The total number of people at work is forecast to continue to rise, albeit more slowly, and the decline in interest rates and inflation will help households.
This means that all the main engines of the economy should be moving forward, after a year when a fall-off in multinational exports and a drop in investment affected the data. Lower exports were due in large part to a fall back in pharma sales from pandemic highs. Higher interest rates also took a toll on households and on investment in 2023.
Recent history has taught us to be careful of expecting stability, but 2024 does appear likely to be a more conventional one in economic terms. That said, the rate of Irish growth – estimated to have been on average 5 per cent per annum by the ESRI between 2013 and 2022 when distortions are factored out – is now slowing.
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The report also underlines the familiar challenge of boosting investment. Strong growth over the last decade and a rising population has left Ireland short in key areas – housing, water, energy, schools, hospitals and so on – as well as struggling to meet climate goals. New calculations in the report suggest that the rate of investment in Ireland remains low by European standards.
However, boosting investment spending is complicated by the fact that the economy is operating close to capacity, providing significant challenges for policymakers as they try to address the key deficits. If they spend more, do they risk getting bad value and boosting inflation? Labour shortages in areas such as construction are a block to progress and the ESRI points out the need for long-term planning to address this issue, while also maintaining the required flow of skilled labour for the multinational sector.
These are complex issues. It is important that they are factored in to policy choice. Ireland’s economic model has been based on a growth-at-all costs approach in recent years.
It is time to stand back and look at where the State is going and how best to underpin progress in the longer term, boosting key social and economic assets, including those which will help Ireland decarbonise.