The Irish economy is difficult to forecast at the moment for two main reasons. One is the well-known problems of Irish economic data, due largely to the presence of big multinationals here. The second is that the domestic economy has proved to be surprisingly resilient through the last couple of years, with the jobs market in particular remaining strong.
Amidst all the confusions of the data, the important message from the latest Central Bank quarterly report is that the outlook for the year ahead – and beyond – is for subdued economic growth. Consumer spending will remain on the rise, but slowly. Exports will recover after a fall last year, but the poor international outlook will remain a constraint. The inflation rate is easing - and will help to boost real incomes - but price rises in the services sector are still a factor.
It is possible to see the glass being half empty or half full. However, after strong growth in the run up to the pandemic and a surge as lockdown ended, it is encouraging that the bank’s forecasters do not see any downturn in sight. Crucially, they say that the labour market appears to be “adjusting to cruising speed from being at full tilt.” If this is indeed the case, then the domestic economy will remain supported.
Slower growth, however, will raise some questions for the Government. In particular, whatever the trend in corporation tax, the rapid growth seen in recent years looks unlikely to continue. And as the report points out, the State faces significant spending pressures and management challenges from the need to invest in housing, infrastructure and climate change and to pay for the costs of an ageing population.
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The Central Bank says policy needs to consider how the economy can absorb this higher investment without adding to supply pressures, as well as meeting the costs coming down the line. A significant economic policy and management challenge lies ahead, in other words, involving some difficult decisions. While the Central Bank’s message is couched in its typically measured and indirect language, it nonetheless needs to be heard.
