I thank the committee for the opportunity to be here to discuss and present the stability programme update to it. This document sets out the Government's macroeconomic and budgetary forecasts out to 2025. It was published in draft form on 13 April and in accordance with our legal requirements, the final version was submitted to European authorities on 29 April. I stress that forecasts outlined in the SPU are produced on a purely technical basis, reflecting existing Government policies, but they allow for the inclusion of new expenditure to provide for the resettling of refugees from Ukraine.
Policy formulation will take place over the summer months, with the summer economic statement setting out the broad economic and fiscal parameters for the budget. As well as the summer economic statement, we will also have the national economic dialogue in June and the tax strategy group meeting, both of which will facilitate a constructive discussion amongst a range of stakeholders on the key socioeconomic issues facing our country. All of this will feed into preparation of the budget next October.
At the start of the year, we took a very significant step forward with the removal of Covid-related restrictions and, for the briefest of moments, it seemed the Irish economy and other economies were starting to return to a degree of normality. Shortly afterwards, however, this outlook was upended, as a deeply serious new crisis arose with Russia's unlawful and immoral invasion of Ukraine. The Russian invasion of Ukraine is, first and foremost, a humanitarian crisis. Along with the unjust loss of life, millions of people have been forced to flee their homeland; over 5.3 million people have left Ukraine at this point, with a further 7.7 million displaced within the country. We firmly recognise this humanitarian crisis but I hope the committee understands that the document and forecasts being discussed this evening focus on the economic consequences of what is a humanitarian crisis in the first instance. We look at the economic effects of this war and the further effects due to the economic and financial sanctions that have been put in place. All of this represents a very large supply-side shock to the global economy but it is fair to say the European Union is at the coalface of this change.
The impact from the war in Ukraine represents the most immediate risk to our economy but we cannot lose sight of the other challenges on the horizon, particularly the ongoing threat that Brexit poses. The UK Government's decision to postpone the further implementation of import controls means that the full impact of Brexit will not be evident immediately. This will not, however, lessen the impact on the Irish economy over time.
The economic consequences of the war in Ukraine are rippling out across the global economy. According to the latest International Monetary Fund, IMF, forecasts, the war in Ukraine is expected to wipe close to 1 percentage point off global growth this year. Ireland’s direct trade links with both Russia and Ukraine are very small but we are nevertheless highly exposed to the indirect effect arising from the conflict and we are already seeing the fallout from the war. This is perhaps most evident in consumer price inflation, which has risen sharply, reaching a many-decade high of 7.3% in April. My Department expects inflation to peak in the second quarter before easing slightly over the rest of the year. We, along with others, anticipate a significant easing in inflation growth next year, with the headline rate projected to average 3% for 2023.
Taking all of this into account, my Department has incorporated a 2.25 percentage point reduction in its growth forecast since the time of the budget. We are now projecting modified domestic demand growth this year of 4.25%. These projections are based on current market expectations regarding oil and gas prices and, as members will be aware, prices can fluctuate, both upwards and downwards.
The Government recognises the real hardship rising prices create for households across this country.
We responded swiftly to provide support where we can with a wide range of tax and expenditure measures worth more than €2 billion. On top of the €1 billion in measures announced in budget 2022, there have been three further cost-of-living packages. These includes the latest measures agreed recently at Cabinet, which are an additional three weeks payment of the fuel allowance, a temporary reduction in VAT on gas and electricity, the scrapping of the public service obligation levy which is placed on energy bills and an extension of the reduction in excise duty to mid-October, as announced last month. Ultimately, however, the causes of current inflationary pressures are not within our control. There is a limit to what the Government can do to offset rising energy costs. We can absolutely help to share the burden, but we cannot absorb it in its entirety.
On a positive note, employment growth surprised on the upside, increasing by more than we expected through the past year or so. The number in employment is now at its highest level - 2.4 million people - ever. The rapid recovery in the jobs market is due in no small part to the various measures the Government put in place to support workers during the pandemic, most notably the employment wage subsidy scheme. These measures helped to maintain the employer-employee link that is so important. With the pandemic, it is hoped, now running out of road, we are now in the final phase of exiting from that emergency support scheme.
Overall, allowing for all these factors, my Department is now forecasting a general government deficit of €1.9 billion for the year. We will have run deficits of €30 billion overall since the start of 2020. We have an expenditure ceiling in place of €85.6 billion for 2023, providing for a 5% in core or non-Covid expenditure next year. An additional contingency fund of €3 billion is in place for next year to address the humanitarian consequences of the Ukrainian conflict. Combining all these elements, we are currently forecasting a marginal surplus next year of 0.5% of national income, or approximately €1 billion. These figures come with a massive caveat, however. There is a very high level of uncertainty in respect of the situation in Ukraine,how it might evolve in the coming months and how it could impact on the public finances.
In addition, it is essential to make the point that public debt still remains high, at just over €235 billion this year, and is a source of vulnerability that must be managed carefully. I also stress that borrowing costs are now on a rising trajectory. The interest rate on ten-year debt for the country has increased by one percentage point in just two months. The rate of interest on recent Government debt exceeded 1.6% on each of the past three days, for example. Overall, it is clear that the era of quantitative easing is coming to an end. The period of extraordinary support that was put in place by central banks across the world during Covid is now concluding. The era in which Governments were, in essence, paid to allow other financial markets' companies to accept their debt is now coming to an end. We need to recognise that and plan for it in the period ahead. The key point is that this will highlight and underline the importance of managing our public finances in a careful way.
The committee will agree that the Irish people have shown great resilience during the pandemic. Unfortunately, yet again we will have to display resilience in the face of new challenges. I emphasise that the Government will continue to work to minimise the fallout for those who have the least as we deal with the challenge of rising prices, for example, and what that means for the standard of living. It must be re-emphasised that we will do that in an environment where the only money we have is that which we collect in taxes and that which we borrow to use now and repay in future. As always, the resources the Government has are limited. We will share and we will do all we can to help with the challenge that many are facing at the moment but we cannot entirely insulate the economy, businesses or even households from the change that is taking place. With that in mind, I look forward to a fruitful and constructive exchange of views on the economic and budgetary outlook. I will take into account the views of members.