Irish GDP expected to contract this year with bank revising forecast

'Current buoyant rates of employment and population growth are not sustainable in the longer-term, evident in pressures on housing, infrastructure and public services,' said BoI chief  economist Conall Mac Coille.

Bank of Ireland revised down its forecast for a key measurement of growth, but remained optimistic amid increasing export levels, despite challenges in the global manufacturing sector.

Bank of Ireland again revised down forecast for Irish gross domestic product (GDP), which measures the output of multinationals, to a -1% contraction for this year due to the statistical distortions.

The lender indicated its updated outlook was related so called "contract manufacturing", where goods produced in other countries had associated profits counted in Irish GDP.

Bank of Ireland’s latest prediction comes after a surprise fall in Irish GDP at the end of the first half of the year, which it said looked “erratic”. However, the bank added it anticipated it would “bounce back later in the year” and grow by 3.5% in 2025.

The bank also urged caution in regard to Government spending, as a surplus of €8bn is likely in 2024

Bank of Ireland said the outlook for the public finances “is extremely uncertain, given the 28% growth in corporate taxes so far in 2024”. 

Meanwhile, Bank of Ireland estimated the domestic economy would continue to grow by about 2.3% — but this may cause capacity constraints and pose a risk of overheating.

“Current buoyant rates of employment and population growth are not sustainable in the longer-term, evident in pressures on housing, infrastructure, and public services,” said Bank of Ireland's chief economist Conall Mac Coille.

Mr Mac Coille suggested pay growth and house price inflation were starting to outpace other countries in Europe, which may make Ireland a less attractive place to do business for some companies.

House prices are now at their most expensive level relative to the euro area since 2009

"In this context, Budget 2025 should be finely balanced between delivering infrastructure in a timely and cost effective fashion, whilst avoiding measures that risk overheating the economy,” he said.

Consumer spending is also expected to grow this year and in 2025, as employers are likely to increase wages in a tight labour market. Households will therefore experience real wage growth as inflation continues to cool.