THE IRISH ECONOMY is continuing to grow despite a contraction in Gross Domestic Product (GDP) this year.
In its quarterly economic commentary report published today, the Economic & Social Research Institute (ESRI) said that while the underlying Irish economy continues to grow, external sources of growth are slowing.
Exports and investment levels in the domestic economy have registered negative growth rates in recent quarters, the ESRI said, mainly due to the slowdown in multinational enterprise-related activities.
A report by the ESRI in October predicted that GDP would decline this year by 1.6%. However, it now expects GDP, which is very heavily influenced by the multinational enterprise sector, to contract this year by 2.7%.
This is the first episode of negative GDP growth in Ireland since 2012.
Despite this, the ESRI has said modified domestic demand (MDD), a metric more commonly used in Ireland as it excludes the economic activities of multinationals, is set to increase by 0.6% this year. The ESRI had predicted in October that the MDD would increase by 1.8% this year.
MDD is expected to grow at an average of 2% next year.
In the past, GDP has generally tended to overstate the degree of growth in the domestic economy. In the present case, however, it actually understates the degree of activity in the domestic economy, the ESRI said.
Meanwhile, the ESRI has said overall inflation is beginning to slow, mainly due to the fall in energy prices.
It said inflation in non-energy related items has proven to be stubborn, but with the fall in energy prices a slowdown is expected here too.
The ESRI still expects the Consumer Price Index (CPI) to increase by 6.4% this year, and 2.9% next year.
The Institute noted that its forecast for 2023 represents an increase in its previous forecasts of inflation as rates have not declined as rapidly as it previously expected.
Ireland’s labour market is continuing to perform robustly, with the ESRI saying this underscores the resilience of the underlying economy.
Employment levels are currently at a historical high. In the second quarter of this year, there was an employment rate of 74.2% among people aged 15-64, according to the Central Statistics Office.
The ESRI said that while unemployment has increased since the summer, this reflects an increase in the labour force rather than any sustained fall in employment or weakening in economic activity.
Looking ahead, the ESRI said the Irish economy is set to grow at a more modest pace. It said this relfects the inevitable slowdown in the performance of key multinational sectors such as pharma and the unwinding of savings built up during the Covid-19 pandemic.
“Cost of living challenges have put pressure on many households over the past number of years. In recent months, we have begun to see inflation moderate on the back of energy price declines, and we expect this to continue in 2023,” report author Dr Conor O’Toole of the ESRI said.
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