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Irish Economy

Failure to address housing issues could push inflation upwards, warns Central Bank

The Central Bank has published its new quarterly bulletin detailing the latest outlook for Ireland’s economy.

DELAYS IN ADDRESSING capacity constraints in housing and other infrastructure could push inflation upwards and damage competitiveness, the Central Bank has warned.

The Central Bank has published its new quarterly bulletin detailing the latest outlook for Ireland’s economy, which it expects to grow over the coming years while unemployment remains low and inflation slows.

However, there are several potential risks that could throw its forecast of stable growth and lower inflation off course.

In a statement, the Central Bank has said that with geopolitical tensions “remaining elevated”, the current downward trend in energy prices could change and there could be renewed upwards pressure again on inflation.

Additionally, if the period of low growth in the global economy lasts longer than expected, it presents risks to Ireland’s economic outlook.

“Delayed progress in addressing capacity constraints in housing and other infrastructure could generate higher and more persistent price and wage inflation and damage competitiveness,” the Bank said.

Furthermore, increases in labour costs above productivity could put pressure on inflation, while a downturn in the pharmaceutical or ICT sectors would weaken net exports, domestic investment, tax revenue and economic activity compared to forecasts.

The bank warned that ensuring Ireland’s economy has the capacity to absorb necessary investment to address challenges in housing and climate change while being fiscally sustainable will require more active consideration. This will include considering the role of various taxes and expenditures.

The Central Bank also outlined that exports produced in Ireland declined in 2023 but it said this should recover in 2024 and subsequent years, driven by a return to growth in pharmaceutical trade.

Net wealth inequality has decreased since 2013 but the richest 10% of Irish households still own 48% of total net wealth, according to the bulletin.

Director of Economics and Statistics said Robert Kelly said that “global headwinds and domestic capacity constraints” are affecting the growth of the Irish economy.

“Disinflation has been significantly progressing and external price pressures have largely passed. However, domestic price developments – especially in the services sector – have been more persistent,” Kelly said.

“With moderate growth in the domestic economy anticipated out to 2026, increased focus remains on enhancing supply conditions to bolster resilience and support a sustainable growth in living standards.”


The bulletin further detailed how the labour market is operating at full capacity and the unemployment rate “still remains close to all-time lows”, though it says that employment growth has slowed.

The unemployment rate is expected to average out at around 4.5% between now and 2026.

The pace of growth in employment numbers slowed from 6% in December 2022 to just 2% in December 2023.

Recent data also points to weakness in investment in Ireland, led by declines in the multinational sector.

“Headline investment increased by 2.9% in 2023, buoyed by an increase in imports of R&D-related services and trade in intellectual property in the final quarter,” the Central Bank said.

“Modified investment, which attempts to exclude some of the distortions related to globalisation, was significantly weaker, falling by 7.1% in 2023 as machinery and equipment and commercial construction declined from exceptional levels in 2022.”

Machinery and equipment investment, excluding aircraft leasing, declines by 9.8% last year, which is attributed to significant plant-specific investments from multinationals in recent years coming to a conclusion.

Housing investment grew last year, with investments in new dwellings up 9.4% for the year.

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