Economic growth slows down in Ireland

The Irish economy, which experienced rapid expansion in the wake of the Covid-19 pandemic, is now showing signs of slowing growth, according to the Economic and Social Research Institute (ESRI), a prominent think tank. The ESRI has revised its growth forecast for the domestic economy downward for this year, from an initial estimate of 3.5% to 1.8%.

Several factors are contributing to this slowdown, including inflation, rising interest rates, and reduced demand for certain exports. Despite these challenges, the ESRI noted that the Irish economy is still operating at near capacity. Low unemployment rates are expected to persist in the foreseeable future.

The ESRI highlighted that the labor market remains robust, with unemployment stabilising at around 4% over the past year, indicating that the economy is approaching full employment. To gauge Irish domestic output accurately, the ESRI uses a measurement called Modified Domestic Demand (MDD), which excludes the distorting effects of multinational companies. Currently, MDD is estimated to grow at 1.8% in 2023, while Gross Domestic Product (GDP) is projected to decline by 1.6%.

These economic insights come ahead of the Irish government’s budget announcement scheduled for October 10th. The budget is expected to include core spending increases of €5.2 billion and additional temporary spending, particularly to address energy costs. Irish Finance Minister Michael McGrath highlighted four key areas of focus in the budget: cost of living, housing, competitiveness, and long-term financial planning.

The Republic of Ireland anticipates running significant budget surpluses in the coming years, driven by a windfall in corporation tax revenue from multinational companies. Despite the strong economic performance, the governing coalition faces challenges in public opinion polls due to high housing costs and strained public services, leaving many feeling excluded from the country’s prosperity.