THE CENTRAL BANK has maintained that the economy is set to expand in the coming years but the rate of growth has been revised down.
In its latest quarterly bulletin, published today, the regulator has said that the impact of the war in Ukraine, high inflation and heightened uncertainty are reducing confidence and prompting consumers and businesses to cut back on spending.
This has seen the Central Bank revise down its growth forecast for this year to 4.3%. It’s reduced its forecast for next year to 4.2% and its 2024 prediction has been brought down to 3.8%.
Meanwhile the regulator is also predicting that the cost of living is set to continue to deteriorate, with consumer price inflation revised up to 7.8% this year due to spikes in energy prices and other goods and services.
Inflation is set to moderate to 4.2% next year and fall to 2.1% in 2024 if current financial market expectations come to fruition and energy prices decline in the second half of the year.
The bulletin notes that real incomes have fallen this year but tight conditions in the labour market mean higher wage growth is expected next year and in 2024.
The key export sectors of the economy have performed strongly so far this year. These indicators are consistent with continued overall growth but the outlook is uncertain.
On the international front, the situation has deteriorated and more adverse conditions could impinge on the growth of exports.
The Central Bank’s Business Cycle Indicator has signalled a slowdown in domestic economic activity in recent months, with overall retail sales flat on a monthly basis in April and May and declines in consumer sentiment.
“Whilst positive economic growth is still expected in 2022, higher prices and costs are already impacting negatively on households and firms,” acting deputy Central Bank governor Mark Cassidy said.
“Households’ real incomes and purchasing power are expected to fall in 2022, before recovering over the following years. Relatedly, domestic consumption and investment are expected to grow at a slower pace this year and next than previously expected.
“Uncertainty around the medium-term outlook remains high; however, the expectation is that inflation will start to decline during the second half of this year,” Cassidy concluded.
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