Economy to grow at a slower but healthy pace, says Bank of Ireland

The bank aid the reduction was due to artificial measurement distortions related to the multinational sector, rather than a material slowdown. File picture: Denis Minihane

Bank of Ireland has revised down its GDP forecast for the Irish economy on the contraction of contract manufacturing by multinationals but has revised up its forecast for growth in consumer spending and employment.

The bank expects GDP growth of 1% this year, down from 1.5% forecast in February. Bank of Ireland's Chief Economist Conal Mac Coille said the reduction was due to artificial measurement distortions related to the multinational sector, rather than a material slowdown.

"It is clear the Irish economy got off to a healthy start to 2024. We have revised up our forecasts for the growth of consumer spending (3%), employment (1.7%) and modified domestic demand (2.5%) in 2024, with unemployment expected to stay close to 4%," he said.

"A tailwind is that wages are now rising faster than inflation, helping households’ real incomes, also aided by the tax cuts in Budget 2024. The gradual recovery in the euro area and UK is also helping, as is the rapid growth in public spending.” 

In its economic forecast, the bank said it expects inflation to average 2.3% this year before easing back to 2% in 2025 and 2026. This mainly reflects recent energy price cuts, but also food price inflation receding to 2.6% in May.

"Whilst we see CPI inflation staying close to 2% in 2025 and 2026, there is a clear upside risk to our projections from overheating pressures in the Irish economy. Ireland will still need to keep a close eye on competitiveness," Mac Coille said.