Ireland’s ‘mood music’ is lighter but households are still under pressure as 71% of firms pass cost increases on to customers
The Irish economy is set to grow faster than expected this year, but households and businesses could face more price pressures, according to Ibec.
In its latest economic outlook, Ibec forecasts the economy will expand by 3.6% this year, an increase on its November prediction of 2%, as a prolonged recession in Europe is now “unlikely”.
“The mood music in the economy is much lighter as we enter spring,” said Ibec chief economist Gerard Brady.
“Recent data across the global economy point to some easing of inflationary pressures, less volatility in wholesale energy prices, and signs that global demand is proving resilient despite sharp increases in interest rates.”
Ibec upgraded its forecasts for both consumer spending and overall domestic demand in the Irish economy by 0.5 percentage points.
It also predicted that inflation will ease to under 4% by the end of the year, but this is still a relatively high level compared to pre-covid and pre-war lows over the past decade and will lead to prices remaining stubbornly high.
“The process of allocating the cost of higher price levels will accelerate as governments withdraw fiscal support, triggering further pressure for both businesses and households,” said Mr Brady.
Other risks remain for Ireland’s financially stability and the broader economic outlook for the year.
These include more interest rates by the European Central Bank in an effort to stifle inflation as well as tight energy and labour markets. Ireland’s employment growth is likely to remain strong though, the report suggests.
“Challenges in attracting and retaining workers in the economy will remain the key constraint on growth for the Irish economy over the years to come,” Mr Brady said.
Ireland’s major economic and social challenges within our control continue to be ones of capacity in housing and broader public infrastructure.
“High employment, rising wages and more active recruitment among employers are leading to sharp decreases in people remaining on unemployment supports along with rapid growth in the overall labour force,” he added.
Meanwhile, InterTradeIreland’s latest quarterly All-island Business Monitor survey showed businesses are still optimistic despite battling ongoing headwinds.
The report indicated firms across the country finished the year on a more positive note than expected despite high inflation, while 91% of respondents said they are stable or growing.
But InterTradeIreland director of strategy Martin Robinson cautioned:
However, I would not be rolling out the red carpet to welcome a full-throttle economic recovery just yet.
“We must bear in mind that it is against a complicated economic and geopolitical backdrop.”
“We need to see the results for the next quarter or two to get a better sense of whether this may be the start of a sustained uplift,” he added.
The separate report revealed 71% of business in Ireland have passed on price increases to customers due to rising costs and 33% are expecting sales to increase in the next six months.
“Not surprisingly, high input costs of both energy and other overheads remain the dominant issues for Irish business,” said Mr Robinson.
The monitor started in 2008 as the country suffered a financial crash. It is based on the views of more than 750 business managers across the North and Republic of Ireland. Growth and stability rates in the North and the Republic were similar in Q4.
“Manufacturing is more upbeat after recent price shocks as there could be a sense that most of the bad news is already priced in,” said Mr Robinson.
“We would expect the hospitality sector to have a seasonal boost in the last quarter of the year, although fewer businesses in this sector are in growth mode relative to other sectors.”