Wages are likely to grow by an average of 4.5 per cent next year as the Irish economy rebounds sharply from a minor contraction this year, according to a report by EY.
It says the Irish economy is “continuing to perform well” in spite of flat headline gross domestic product, with strong domestic growth and buoyant tax receipts, combined with record numbers in employment and low inflation for the rest of the year and into 2025.
Ongoing volatility in the multinational sector means a slight reduction in GDP by 0.3 per cent is expected for 2024, however this is forecast to rebound strongly in 2025, increasing by 4.5 per cent.
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Furthermore, the economy as measured by modified domestic demand – seen as a more accurate measure of underlying domestic activity – is forecast to grow by 2.3 per cent this year, increasing to 3.2 per cent in 2025.
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EY Ireland chief economist Dr Loretta O’Sullivan said the “vibes” the Irish economy is giving at the moment are “pretty good”.
“Consumers are spending, businesses are hiring, exports are rebounding and tax receipts are buoyant,” she said.
The number of people employed in the Republic stood at 2.75 million in the second quarter of 2024, with income tax receipts indicating hiring continued in the third quarter.
EY’s autumn forecast has revised upward employment, with growth now projected to reach 2.2 per cent this year and 1.8 per cent in 2025.
Job vacancies have eased indicating some softness in hiring into the future. However, the unemployment rate is projected to be 4.4 per cent this year and 4.6 per cent next year. EY also said it envisages “solid wage gains” of 4.5 per cent on average in 2025.
“While GDP is exhibiting some weakness, a host of other metrics indicate that the economy is doing well,” Dr O’Sullivan said.
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“Modified domestic demand was up in the first half of the year, inflation is back at rates consistent with price stability, the unemployment rate is low and the tax take is high.
Dr O’Sullivan said job and wage gains “are expected to continue” over the forecast horizon, supporting consumer spending, with an anticipated “budget boost” in the offing for households next week.
“As the cost of borrowing is an important driver of business spending, more favourable financing conditions as the European Central Bank loosens monetary policy should help lift investment,” she said.
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However, the headline fiscal position “masks underlying vulnerabilities”, she said, citing demographic change, decarbonisation, digitalisation and deglobalisation as known challenges. “Spare capacity in the economy is also relatively limited at present,” she said.
Meanwhile, the Northern Ireland economy has fared better this year following a challenging time last year.
EY forecasts the economy will grow by 1.1 per cent this year and by 1.8 per cent next year, with employment to increase by 1 per cent in 2024 and 0.7 per cent in 2025.
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