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Economy and Finance

Economic forecast for Ireland

The latest macroeconomic forecast for Ireland. 

GDP is expected to grow by 7.9% in 2022, then to moderate to 3.2% in 2023 and 3.1% in 2024 on the back of lower purchasing power and uncertainty weighing on investment. Net exports, particularly of multinational corporations, are expected to remain resilient and be the main driver of growth. Inflation is expected to peak at 8.3% this year and to remain high at 6.0% in 2023 before moderating to 2.8% in 2024. The fiscal outlook is benign, with the budget balance posting surpluses throughout the forecast years.Real GDP in Ireland grew by 10.8% q-o-q in the first quarter of 2022, a big rebound after a marked fall in the last quarter of 2021.

Last update (forecast)

Indicators2021202220232024
GDP growth (%, yoy)13,67,93,23,1
Inflation (%, yoy)2,48,36,02,8
Unemployment (%)6,24,44,85,0
General government balance (% of GDP)-1,70,20,81,2
Gross public debt (% of GDP)55,444,741,239,3
Current account balance (% of GDP)14,218,118,217,8

Still favourable developments despite global headwinds

Ireland’s real GDP grew robustly in the first half of 2022 by 10.9% year on year, driven by private consumption, investment, and strong net exports. However, sharply higher inflation is squeezing households’ real income and weighing on consumer sentiment, as already shown by lower retail sales over the summer. Manufacturing in Ireland held up well but business sentiment has been moderating since summer. 
     
On the back of rising energy bills and cost-of-living, private consumption is expected to fall over the coming quarters. The large savings accumulated during the acute phase of the pandemic will cushion the impact of higher prices. Irish households continue to engage in considerable saving activity, partly for precautionary reasons. Generally, the financial situation of Irish households remains solid, with the unemployment rate at historic lows and wages rising, albeit more slowly than inflation.

Investment activity is projected to be strong in 2022. In the first half of the year, total investment grew by 22.5% year on year. Building and construction activity beat expectations and increased by 18% year on year. Investment growth is set to moderate in 2023 and 2024 due to rising borrowing costs and high uncertainty.
 
Exports, notably of multinational corporations producing medical devices, pharmaceuticals and those providing information and communication services, remain the driving force behind Ireland’s very strong economic growth. These sectors are generally expected to remain resilient and supply difficulties have reportedly diminished.

GDP is expected to grow by 7.9% in 2022, then to moderate to 3.2% in 2023 and 3.1% in 2024 on the back of lower purchasing power and uncertainty weighing on investment. Modified domestic demand, which better reflects underlying domestic economic activity, is expected to expand by 8.6% in 2022, 2.0% in 2023 and 3.4% in 2024.

Employment at record high

The labour market is tight. By the second quarter of 2022, 2.55 million people were in work, the highest number on record. The unemployment rate stood at 4.3% in September. Participation rates, particularly of women, have substantially risen due to more flexible working arrangements, and youth activity also increased. Skill and labour shortages are widespread. Inward migration has picked up, with non Irish nationals, including Ukrainians, contributing materially to the expanding labour force and alleviating some labour shortages. Employment is expected to keep increasing but at a moderating pace, in line with the projected slowdown in economic activity.

High inflation set to persist

HICP inflation remained elevated throughout the summer and stood at 8.6% in September. The energy component is the main driver, though all other main categories show price increases of 5% or more compared to the previous year, with food prices accelerating notably over the last months. Inflation is projected to peak in the last quarter of 2022 before slowly declining in 2023 and 2024 as energy inflation base effects taper off. Wage pressures are expected to intensify in the coming months, fuelling core inflation. Inflation is forecast to reach 8.3% in 2022, 6.0% in 2023 and 2.8% in 2024.
  
Ireland’s high concentration of exports in a few fields and companies may continue to cause volatility in the country’s economic growth figures.

Projected budgetary surplus in 2023 amid downside fiscal risks

Ireland’s general government budget balance is projected to turn to a small surplus of 0.2% of GDP in 2022 from a deficit of 1.7% in 2021. Revenue growth in 2022 is projected to be strong, amid continued strong corporate earnings growth and high wage increases, both fuelling tax revenues. This forecast assumes that the measures to mitigate the impact of high energy prices on household energy bills – amounting to 0.3% of GDP in 2022 – will end by February 2023, limiting government expenditure growth.

In 2023 and 2024, government budget surpluses are forecast to increase to 0.8% and 1.2% of GDP, respectively, amid a resilient labour market. Further notable policy measures with a bearing on the budget balance are the end of the energy related temporary welfare measures introduced in the 2023 budget (0.2% of GDP) and a provision of a contingency in 2023 for people fleeing the war in Ukraine. 
The general government debt-to-GDP ratio is projected to decrease from 55.4% in 2021 to 44.7% in 2022, and further to 41.2% in 2023 and 39.3% in 2024, in spite of transfers of 2 and 4 billion EUR to the National Reserve Fund in 2022 and 2023, respectively.

Risks to the fiscal outlook are tilted to the downside. The current very high intake of corporate taxes may be temporary and thus also entails downward risks for Irish public finances.