Trying to forecast the growth rate of the Irish economy in terms of Gross Domestic Product ( GDP), the accepted international measure, is often seen as a pointless endeavour. The figures are now so deeply affected by the tax-driven activities of multinational companies that GDP can often give a misleading picture.
For this reason, the latest forecasts from the European Commission that GDP fell last year by around 1.9 per cent and will rise in 2024 by just 1.2 per cent, did not attract significant attention. Because the domestic economy held up last year – as the commission itself notes – the GDP recession last year is generally dismissed as being “technical”.
Nonetheless, there is an underlying trend here which should be noted. The EU economy, where Ireland’s major markets are located, is slowing. And this is having an impact in Ireland. Business investment, nervous about demand, is lacklustre at best. And while consumer spending is supported by a strong jobs market, higher interest rates and the cost-of-living crisis have taken their toll here, too.
None of this is terribly surprising and nor should it be a reason for undue concern. Unemployment remains low and the Irish public finances are healthy. The EU economy should revive as interest rates fall, helping prospects for Ireland over the next two or three years. Inflation is falling and, encouragingly, the commission believes that it will average 2.2 per cent in Ireland in 2024 and below 2 per cent next year. This will come as much relief to consumers, even if the actual level of prices remains high.
A middle-class millennial at a Kneecap gig: am I just cosplaying at republicanism?
What should I do if my electric car breaks down?
Matt Williams: In cynical times, savour the new coaches who want to make the world a bit better
Political stupidity of Fianna Fáil four could see Ireland end up with a bottom-of-the-barrel job in Europe
However, the Government needs to note the likelihood that the underlying level of economic growth here has slowed and cannot be guaranteed to outperform the EU average on a long-term basis. Ireland has done particularly well in recent years, helped by a flood of inward investment after 2015,which boosted employment, growth and particular tax revenues. The domestic economy has also performed well, helped by strong consumer spending and supported by the Government through the pandemic.
Now, however, the picture is more mixed. Consumers are still dealing with the fall-out from the cost-of-living crisis, while businesses complain that their cost bases are soaring. Ireland faces increasing competition for foreign direct investment - and some new opportunities in this arena.
In policy terms it is time to return to basics. As well as tackling the housing crisis, there are policy challenges in education and infrastructure which need to be addressed. Competitiveness, in its widest sense, has to be underpinned. Much of this is long-term, politically unglamorous – or at times even unpopular – work. But it needs to be done.