Irish GDP to grow this year, but at a more moderate pace than other years

In its Economic Eye Summer 2023 forecast, EY predicts that GDP will rise by 4.8% this year and 4.3% in 2024

EY Ireland chief economist Loretta O'Sullivan says the dust is beginning to settle on the economic shocks triggered by the pandemic and the war in Ukraine. File picture

Ireland’s economy is expected to expand moderately compared with previous levels of outsized growth, but will continue to outperform other economies in the eurozone, according to a new forecast.

Professional services firm EY predicted gross domestic product (GDP), which measures multinational activity in the economy, will rise by 4.8% this year and 4.3% in 2024, EY said in its Economic Eye Summer 2023 Forecast.

In comparison, GDP grew by around 12% in 2022.

“The dust is beginning to settle on the economic shocks triggered by the pandemic and the war in Ukraine and our Summer Economic Eye forecasts solid growth for Ireland over the coming years, albeit at a more moderate pace than the exceptional growth of recent years,” said Loretta O’Sullivan, EY Ireland chief economist.

Multinationals, especially big tech which has a huge presence in Ireland, have battled ongoing challenges including soaring prices such as energy and inflation driven interest rate hikes.

However, the economic environment is increasingly becoming less volatile. Energy prices and inflation have cooled since last year and interest rates are set to hit a peak soon as the European Central Bank (ECB) is expected to meet on Thursday.

EY also said it is forecasting inflation at 5.8% for the year and by 2025 it will return to 2%.

It may take a while though before GDP returns to the levels recorded in previous years. At the end of last year the IDA, the State body responsible for attracting foreign direct investment into Ireland, said momentum in the multinational sector is set to slow in the second half of this year.

Meanwhile, EY forecast modified domestic demand, a reliable indicator of the fortunes of the domestic economy, will grow by to grow by 3.4% in 2023 and 3.0% in 2024.

In its report, EY said it anticipates labour market conditions to stay tight over the coming years, with employment increasing by 2.8% this year, before moderating to 1.5% in 2024.

“For the economy, a tight labour market can give rise to risks in terms of overall competitiveness, particularly if wage growth becomes detached from productivity growth over the longer term,” said Ms O’Sullivan.