Ireland’s economy is expected to expand at more than double the pace of the European Union average this year as the bloc scrambles to deal with the economic fallout from the war in Ukraine.
The European Commission’s latest economic forecasts, published on Thursday, come with a health warning of sorts, however. The commission noted that once the activities of multinational companies were stripped out, the Irish economy actually shrank in the first three months of the year.
The projections suggest average EU gross domestic product — the average of the total value of all finished goods and services produced within the bloc’s 27 economies — is expected to expand by 2.6 per cent this year and 1.5 per cent next year. That compares with a projection of 5.3 per cent for the Irish economy in 2022, a slight downward revision from the commission’s spring forecasts.
Only the Portuguese and Slovenian economies are projected to grow at a faster pace in 2022. Next year the Irish economy is forecast to grow 4 per cent, the fastest pace of growth in the EU 27 and more than double the expected European average.
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However, the outlook is shrouded by “high uncertainty”, the commission said, due to certain factors “specific to Ireland”. These include “recent developments” regarding the UK government’s “disapplication” of the Northern Ireland protocol through the Northern Ireland protocol Bill, introduced to the House of Commons last month.
Once the activities of multinationals are stripped out, the commission said, the Irish economy shrank in the first quarter. This is “particularly due to falling investment in non-residential construction and equipment”. Private consumption also contracted, according to the commission’s data, “owing to Covid-related restrictions and rising inflation”.
Irish consumer price inflation is expected to fall below both the EU 27 and euro zone average this year and in 2023. Irish inflation will average out at 7.3 per cent this year, the commission said, up from 6.1 per cent in the spring forecasts, before falling to 3.3 per cent next year. Euro zone inflation, meanwhile, is expected to average 7.6 per cent this year and 4 per cent in 2023, while the rate of consumer increases across the 27 economies of the EU will average 8.3 per cent this year and 4.6 per cent next year, the commission expects.
The projections follow the publication on Thursday morning of the Central Statistics Office’s June consumer price index, which showed annual Irish inflation — driven mainly by energy, food and fuel — hitting 9.1 per cent last month, a 38-year high. Last week the Central Bank of Ireland forecast inflation to peak at about 10 per cent in the third quarter of the year before falling back down and averaging 7.8 per cent for the year as a whole.
The commission said on Thursday that as the “reality of a protracted Russian invasion of Ukraine sinks in, the assessment of its economic consequences for the global economy is turning grimmer”.
