Irish economic policy now has “less room for error” amid changes in the global economy that are likely to bring heightened uncertainty to exporters, business group Ibec has warned.
In its latest quarterly economic outlook, Ibec said the global economy was entering a period of major change that would see more competition for investment in new technology, falling levels of trade openness and rising geopolitical risk.
The resulting uncertainty and volatility in the business environment facing Irish companies selling abroad will in turn increase focus on reducing vulnerability to inflationary swings and addressing competitiveness concerns, it said.
“For domestic policy, these changes in the global economy will reduce the margin for error when it comes to improving our domestic cost competitiveness, skills, infrastructure and capacity to innovate.”
Nevertheless, Ibec is forecasting growth of 2 per cent in gross domestic product (GDP) and 3.4 per cent in 2025, with higher export growth, investment and the overall economy expected this year and next as inflationary pressures ease and interest rates are cut.
This is an upgrade on the forecasts in its previous quarterly outlook, which predicted growth of 1.6 per cent this year and 2.9 per cent in 2025.
“Much of the underperformance in exports and capital investment last year was driven by once-off impacts caused by the timing of big investment decisions and reducing demand for Covid-related products in the biopharma sector,” said Ibec head of national policy and chief economist Gerard Brady.
“Headline economic figures for last year belie a robust performance on the ground, with 90,000 additional jobs added and a domestic economy that compares favourably with much of Europe.”
GDP growth of 2 per cent this year will be driven by “a marginally stronger performance in the global economy” as well as “an improvement in some sector and product specific sales″, he added.
“It remains the case, however, that intensified global competition in some sectors and relatively weak growth in key trading partners, particularly in the euro zone, will mean more subdued export growth than had been the case for much of the past decade.”
Falling inflation and a cycle of rate cuts, expected to be initiated by the European Central Bank in June, are likely to provide a boost to the Irish economy, although consumers will continue to face prices that remain higher than in previous years as a result of elevated global commodity costs, Mr Brady said.
“Whilst the domestic market remains in a much better position than in much of Europe, there are broader concerns about the strength of the global economy which will weigh on Irish growth in the coming years.”
On economies competing for major investment projects, Mr Brady said a “new era” of increased subsidising of industries and investment in new technologies was leading to “a period of rapid and accelerating change” globally.
“Falling levels of trade openness and rising geopolitical risk in global supply chains, energy, and commodity markets mean there will be a more frequent disruption of global supply chains and less integrated trade. For the Irish economy, this means there will need to be a renewed focus on cost competitiveness, skills, infrastructure and our capacity to innovate to safeguard our export-led growth model.”
On housing, the report highlights “a promising increase” in the commencement of new homes in the early part of 2024 and said an increase in homes receiving planning permission was a “positive sign”. However, a “significant gap” remains between the number of units that receive planning approval and the final count of completed homes, it said, describing planning bottlenecks and timelines within the system as “a continuing challenge”.
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