A grim forecast from the Central Bank of Ireland predicts moderate economic growth in Ireland of 2.2% in 2023, down from 6.4% expected this year.
The pessimism goes hand in hand with the thinking of the Ministry of Finance, which also projected modified domestic demand growth of 2.2% through 2023.
MDD is now the preferred measure of economic growth used by Irish policy makers, instead of GNI, GDP or GNP.
The CBI’s latest quarterly bulletin for 2022 reports that a sharp increase in investment in the first half of 2022 means its forecast for MDD for the full year of 2022 is revised upwards. However, the expected growth in the second half has been revised downwards.
Robert Kellyacting director of economics and statistics, said the drag of higher inflation on disposable incomes is expected to continue through the first half of 2023 and ease thereafter.
“Average real household incomes are expected to fall 3.3% this year and remain relatively stable next year as a whole,” Kelly said.
“This expectation, coupled with more precautionary savings, means consumer spending is expected to grow at a slower pace than expected, particularly in 2023.”
The CBI believes that while the labor market is doing well, rising consumer prices and business costs should impact both household spending and business investment in the near term.
The regulator believes that as inflationary pressure begins to ease through 2023, domestic growth will pick up.
Consumer price inflation forecasts have been revised by the Central Bank to 8.0% in 2022 and 6.3% in 2023.
These revisions reflect the expectation that the spillover from energy to other parts of the consumption basket will continue for some time.
Non-energy inflation is expected to average 4.4% in 2023, up from the 3.8% forecast in the July Bulletin.
Export growth is expected to slow to 8.2% in 2023 from 14.2% in 2022, which will keep the GDP figure on the rise.
Kelly added: “There remain upside risks to the inflation forecast and downside risk to the growth forecast. A more intense and protracted war in Ukraine or a further deterioration in energy or food supplies would result in weaker growth and higher inflation than projected in the baseline forecast.
“A less favorable growth path for the UK would have slightly negative implications for growth forecasts, while a larger appreciation of the euro against the pound would imply lower inflation than currently expected.”