BOI forecasts Irish economic growth amid falling inflation
The unemployment rate is to remain close to 4.5% but could potentially rise (Photo by Burak The Weekender via Pexels)
Bank of Ireland is forecasting Irish GDP growth of 1.5% next year and 4% in 2025 in its latest Economic Outlook for Ireland.
Consumer spending
With inflation easing back, consumer sentiment has improved in the past few months, reaching a 23 month high of 74.2 in January. Spending this year should be assisted by higher real incomes – with wage increases likely outpacing CPI inflation – while continued employment growth should also help. Bank of Ireland is predicting Consumer Spending growth of 2.9% for 2024 and 3.0% for 2025.
Inflation
Bank of Ireland is forecasting that inflation will fall further, helped by domestic energy providers cutting prices and combined with the ongoing impact from an aggressive interest rate hiking cycle. CPI is forecast to average 2.5% this year, down from 6.3% last year, and to 2.0% next year.
Investment
Investment should bounce back this year and Bank of Ireland is forecasting small gains in both headline investment and modified investment in 2024, strengthening to 2% and 3.5% increases respectively in 2025.
FDI continues to flow in and the IDA announced another 248 investments in 2023 with Ireland continuing to attract high value and high tech services and manufacturing names. Housing supply has picked up further in the face of continued very strong demand with 32,695 completions in 2023, an increase of 10% from 2022.
Employment
Employment growth will slow from 3.6% last year to around 1.5% in each of the next two years. The rapid pace of job creation has been facilitated by strong labour force growth, supported by demographic factors and robust inward migration.
Unemployment remains at low levels though it has picked up of late. The seasonally adjusted rate stood at 4.5% in January 2024, up from a low of 4.0% in February of last year. This increase has been driven by growth in the labour force rather than weakness in employment growth. Further jobs growth will be somewhat constrained by labour shortages as the current pace of increase in the labour force is probably unsustainable.
Exports
Bank of Ireland is forecasting 3.0% growth in exports for 2024 and 5% in 2025. Exports have been the driver of the exceptional growth Ireland has seen within the past number of years, largely down to contract manufacturing in a small number of companies rather than the strength of the export sector as a whole. The outsized influence has turned around this year and is negatively impacting with export growth falling from 13.9% in 2022 to average -2.9% in the first three quarters of 2023.
Housing
House price inflation is likely to remain in low single-digit territory in 2024 due to lack of supply, already evident in MyHome asking price inflation at 4%. Housing completions will grow to 34,000 units in 2024, supporting investment spending, but this is still well short of the 40-50,000 required to satiate demand.
GDP
Pharmaceutical companies had to reorganise post COVID – and this also appears to have impacted exports this year – but any slowdown here is likely to be very temporary as Ireland remains a world leading destination for medical/chemical/pharmaceutical companies.
Bank of Ireland is forecasting the MNC sector to bounce back from a contraction of 6.6% in 2023 to 0.5% growth in 2024 and 5.2% in 2025. In the domestic sectors, slower but steady growth is the forecast, with the consumer contributing and investment, supported by continued home building, also chipping in and we see the indigenous sector expanding by about 2.5% in 2024 and 2025.
Conall Mac Coille, chief economist, Bank of Ireland, said: “The impact of the fall in GDP last year will reverberate though 2024 and hold back growth to 1.5%. However, with inflation falling back and real incomes growing, consumer spending should continue to expand while continued house building should underpin domestic investment growth, with both contributing to a solid rise of 2.3% in modified demand.
“We saw a poor GDP performance in 2023 where the economy contracted by 1.9%, driven mainly by specific issues in the multinational export sector, however this does not reflect a long term trend. In reality, it is a recession in name only as by most other measures, the economy continued a steady rebound last year. We expect solid activity in the indigenous sector where expansions in employment and domestic demand in 2023 should continue in 2024.”
