Dáil Éireann Debate, Thursday - 16 June 2022
30. Deputy Matt Shanahan asked the Minister for Finance the way that he and his Department plan to address the new challenges such as supply chain issues and inflation highlighted in the recently published progress report on the 2021 Economic Recovery Plan which also confirmed that employment levels have exceeded pre-pandemic levels; and if he will make a statement on the matter. [31007/22]
View answerThe Irish economy has proven to be remarkably resilient over the last number of years when faced with the unprecedented challenges posed by the Covid-19 crisis. Arguably, the resilience of the Irish economy has been most clearly evident in the labour market, where a remarkable recovery has taken place in just a short space of time. There was a record 2½ million people in employment in the first quarter this year while the unemployment rate fell to 4.7 per cent in May, its lowest rate since 2006.
However the war in Ukraine has fundamentally altered the economic outlook and created significant economic headwinds both in Ireland and throughout the world. The onset of the war stoked fears around global energy and commodity supplies and brought about a rapid spike in prices. These volatile price movements, in particular in the global energy market, have had knock on implications for the everyday cost of living in Ireland. Driven by the rise in energy prices, inflation is currently running at a multi decade high of 8.3 per cent. Higher energy price are now having a pass-through impact into other sectors and as a result price pressures are becoming increasingly broad based. Higher prices will erode the purchasing power of consumers and undermine the profitability of businesses. At least over the short term, higher inflation will continue to act as a significant headwind to economic growth.
The Government is acutely aware of the cost pressures currently facing households and businesses and has responded to help alleviate some of this burden. On a cumulative basis, the Government has announced €2.4 billion in cost of living measures since last October. These measures have included changes in tax and social welfare, the provision of an energy credit for households, a temporary reduction in the rate of VAT on the supply of gas and electricity and a reduction in the excise rate for petrol, diesel and marked gas oil.
Although the impact of the war in Ukraine represents the most immediate and pressing risk to our economy, it is important not to lose sight of the other challenges we continue to face. Covid highlighted the vulnerabilities in global supply chains, if these vulnerabilities become more persistent than expected, it will have negative implications for both output and inflation. Domestically, there is also a real risk that a wage-price spiral emerges as the economy approaches full employment and prices remain elevated. This would damage Ireland’s cost competitiveness and hamper the economy’s ability to compete in the global market place.
My Department will continue to monitor risks to the Irish economy closely, and respond as needed. In calibrating how we respond to the current challenges, it is important that we strike the right balance and ensure policy does not add further inflationary pressures into the system.
