Ireland to avoid recession in 2023 report predicts
Ireland will avoid recession this year, due to record household savings and the capacity for the Government to provide support with what a report describes as “the best budget position in the euro area”.
Stockbroker Goodbody’s chief economist Dermot O’Leary forecasts that modified domestic demand, which is a measure of the economy that strips out the impact of multinationals, will slow from an estimated 5.6% last year.
But he said it will remain positive, producing growth of 0.7% this year and 2.3% next year.
Goodbody’s report says recent job loss announcements “are of concern” but points out only 3% of multinationals based here have been impacted to date.
The report suggests that a greater risk might be falling profits from tech companies and the impact of that on tax revenues.
However, it warns that increased Government support will be needed to ensure that housing completion numbers do not fall behind Housing for All targets.
It forecasts 28,373 residential units will have been completed last year.
However, with a slowdown in commencements, it forecasts this will fall to 27,322 this year and fall again to 26,047 next year.
Despite higher interest rates, Goodbody does not expect property prices to fall this year.
Government support for buyers and the relaxation of borrowing rules by the Central Bank will support the market, it believes.
However, it forecasts house price inflation will slow from an average 8% last year to 3.2% this year.
It also believes that mortgage lending volumes will “flatline” over the 2023/24 period.
It forecasts consumer price inflation will slow to an average 5.6% this year before falling again to 2.8% in 2024.
It said employment grew to a new peak last year with the labour force reaching 2.7 million in the third quarter.
Also, the vacancy rate rose to its highest ever level here.
Many new jobs were filled by workers from abroad with 35,000 new work permits issued last year, an increase of 125% on 2021.
It expects wages to grow by 4.5% this year.
Not out of the woods
Dermot O’Leary told Morning Ireland that the economic mood music globally had improved significantly of late, mainly on the back of the dramatic fall in energy prices.
“I wouldn’t say we’re out of the woods,” he said.
“Inflation is close to multi-decade highs. That’s putting a real strain on households, in particular, but also businesses. Whether it’s slightly negative or slightly positive, the bottom line is we’re facing an international environment that’s very weak relative to history.”
Householders should prepare for further interest rate hikes of around 1% in the coming months, he warned.
The base ECB borrowing rate has been raised to 2.5% since the summer, following a number of years where it was at zero.
Amid a slew of job losses in the tech sector of late, Mr O’Leary said the unemployment rate was likely to rise here in the coming months.
“We are predicting a wider environment of very weak growth – just 0.7% down from over 5% last year. That will have impact on jobs market.
“The technology sector is getting a lot of attention, and rightly so. We’ve estimated that it has affected about 3% of IDA companies. So, it’s limited to date – about 8,500 jobs. We’re saying that, overall, that’s a small proportion of the workforce. Perhaps for Ireland, the major concern is the drop in profitability of those companies and thus the drop in corporate tax revenue,” he concluded.