Glad tidings – sort of – as we’re in for a sharp slowdown but no recession

While growth is slowing, and sharply, Ireland is likely to avoid a full-blown recession. That’s the main takeaway from two big reports on the Irish economy from the Economic and Social Research Institute (ESRI) and the Organisation for Economic Co-operation and Development (OECD) published in the last 24 hours.

And the avoidance of recession isn’t merely a reflection of multinational activity; consumer spending here is expected, for now, to keep growing through the worst of this inflationary crisis, a reflection of the underlying strength of the economy.

Irish GDP (gross domestic product) is now a “mind-boggling” one-third bigger than it was before the pandemic, and modified domestic demand is more than 9 per cent greater, Vincent Koen, deputy director of the country studies branch of the OECD economics department, noted at an event at the Institute of International and European Affairs (IIEA) in Dublin.

“I can’t think of any other OECD country in this league,” Mr Koen said of the Irish GDP, which the Government estimates will amount to almost €500 billion this year.

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These headline indicators will, however, be cold comfort to many households who are likely to experience the sharpest reversal in real earnings since the post-2008 crash period. Inflation is running at about 8-9 per cent while wages are rising at about 4 per cent, corresponding to a squeeze in real income of about 4 per cent. These are averages; many households, particularly lower-income ones, are likely to experience a harder reversal.

Both reports had much to say about Ireland’s continuing housing crisis. The ESRI raised concern about housing completion numbers and the recent fall-off in commencements, which is likely to see a decline in the construction rate next year.

The OECD took aim at the various housing schemes to aid first-time buyers, noting that they were likely to be inflationary – at least in the short term.

The State’s housing crisis, it said, can be traced back to a “decade of underinvestment” after the 2008 property crash. While the population grew by 263,000 between 2009 and 2017, the housing stock grew by just 35,000 units, the OECD noted.