Business

Irish real wages grow for first time in two years as inflation eases

ESRI warns Ireland needs to keep attracting migrants to maintain economic growth

The ESRI estimates that real wages – when inflation is deduced from nominal pay growth – will expand by 2.2 per cent this year and 3.1 per cent in 2025. Photograph: Gareth Chaney/Collins Photos

Joe Brennan
Thu Jun 27 2024 - 00:15

Real wages grew in April for the first time in more than two years, as inflation continued to ease and the labour market remained tight with the unemployment rate running at about 4 per cent, according to the Economic and Social Research Institute (ESRI).

The ESRI estimates that real wages – when inflation is deduced from nominal pay growth – will expand by 2.2 per cent this year and 3.1 per cent in 2025, according to the think tank’s latest quarterly economic commentary.

Kieran McQuinn, a research professor at the ESRI, said that it is “very important” that the Republic continues to attract inward migration in order to support economic growth and expansion of the labour market, which breached the 2.7 million mark for the first time last year.

“The [immigration] channel is making a very strong contribution in certain sectors of the labour market,” Mr McQuinn said, highlighting, for example, that more than one in five workers in human health and social work activities in the State have come from countries outside the EU.

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“We’ve seen the difficulties the UK has been experiencing in certain sectors of the labour because of Brexit. And I think we’d do well to learn from those experiences in Ireland.”

Immigration and housing were key issues during the Irish local elections last month. The Irish Times reported on Monday that the latest monthly Snapshot poll, conducted for the newspaper by Ipsos, found that almost half of adults in the country mentioned that they were most concerned about one or the other of the two topics.

Davy estimated last week that almost 85,000 new homes need to be built annually over the next 10 years to address the structural shortfall in housing and the expected ongoing population. The stockbroking firm said it expected the Republic’s population to grow to 5.9 million by 2030, which would be 524,000, or 10 per cent, ahead of the Government’s National Planning Framework (NPF) baseline of 5.36 million.

The ESRI estimates that 33,000 homes will be completed this year, flat compared to 2023, before increasing to 37,000 in 2025.

Irish modified domestic demand – a gauge of economic growth that largely strips out the impact of multinationals operating in the State – is forecast to expand from 0.5 per cent last year to 2.2 per cent in 2024 and 2.9 per cent in 2025, the ESRI said in its latest quarterly economic update.

It sees gross domestic product (GDP), a broader measure of the economy, expanding by 2.5 per cent this year, following a 3.2 per cent drop in 2023 as a result of a decline in activity in the pharmaceuticals and information technology sectors.

Growth is being supported by an improving global economic, a quicker-than-expected easing of inflation, the start of official interest rate declines and a robust domestic labour market. The European Central Bank (ECB) cut its main rates by a quarter of a percentage point earlier this month, bringing its key lending rate to 4.25 per cent.

The Irish inflation rate had fallen to an annual rate of 2.6 per cent in May from a high of 8.5 per cent in early 2023.

The ESRI called on the Government not to use Budget 2025 – the last one before the next general election – to add to inflation.

“Significant investment is required in the domestic economy across a number of sectors. Therefore, it is imperative that fiscal policy be disciplined to ensure that, while the Government increases expenditure, particularly in investment, it does not additionally stimulate the economy in other areas such as taxation policy,” it said.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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