OECD: Irish economy will grow by less than 1% next year

The Paris-based think tank predicts Ireland will avoid falling into recession in 2023

The OECD said: "Recent retail sales and credit card payments data suggest weaker consumer spending in the third quarter."

The domestic Irish economy faces a tough six months and will expand by less than 1% for the whole of 2023, as soaring costs hit households and businesses hard, the Organisation for Economic Co-operation and Development has predicted. 

Major economies such as Germany and Britain are seen sliding into recession as the effects of the energy costs crisis, from the Ukraine war and hikes in official interest rates weigh on consumer spending and business confidence, according to the latest forecasts of the Paris-based think tank.       

For Ireland, after rebounding from the pandemic this year, the economy now faces tough times through to the summer but will nonetheless avoid falling into recession in 2023.           

Consumer spending         

Under the measure that most accurately reflects the conditions for Irish households and firms, the think tank said modified domestic demand will expand by just 0.9%, down from 8% growth this year, before climbing by over 3% in 2024. Thanks to the multinationals, GDP will expand by 3.8% in 2023 and by 3.3% in 2024, it forecast. 

"Rising prices are lowering real household incomes. The full relaxation of pandemic-related restrictions in early 2022 led to a rebound in consumer and domestic firms’ capital spending in the second quarter," the OECD said, but the economy is now slowing as inflation bites. 

"Recent retail sales and credit card payments data suggest weaker consumer spending in the third quarter, as rising prices hit households’ real incomes, despite sizeable wage growth amidst tight labour market conditions," it said. 

Targeted supports

The OECD said the corporate tax receipts collected from the multinationals helped the Government to fund major subsidies for households and businesses in the budget announced in late September. 

And there may yet be fiscal room for the Government to do more, if so required, although any "further measures should be targeted and temporary", it said. 

"The welcome decision to allocate part of the windfall corporate tax revenues to the National Reserve Fund should be continued in the event of further windfall gains," the OECD said. "Reverting to the new spending rule, after temporarily deviating from it in 2022 and 2023, would move fiscal policy onto a more stable spending path," it said. 

Mixed outlook

For major economies, the outlook is mixed, however, with Europe bearing the brunt of Russia's war in Ukraine. It forecast the eurozone economy will grow 3.3% this year then slow to 0.5% in 2023 before recovering to expand by 1.4% in 2024. That was slightly better than in the OECD's September outlook. 

The OECD predicted a contraction of 0.3% next year in Germany, whose industry-driven economy is highly dependent on Russian energy exports. The French economy, which is far less dependent on Russian gas and oil, is expected to grow 0.6% next year, and Italy is seen eking out 0.2% growth. 

The British economy was seen shrinking 0.4% next year as it contends with rising interest rates. Previously the OECD had expected 0.2% growth. The US economy was set to hold up better, with growth expected to slow from 1.8% this year to 0.5% in 2023.