Michael Moynihan
Question:117. Deputy Michael Moynihan asked the Minister for Finance his response to the recent European Commission spring forecasts for the Irish economy in 2023 and 2024. [30035/23]
View answerThursday, 22 June 2023
Questions (117)
Written answers
I welcome the publication of the spring forecasts by the European Commission. While GDP growth for 2023 has been revised upwards for the euro area and European Union since the Commission’s winter forecasts, risks are once more tilted to the downside and these forecasts were made prior to the recent downward revision to GDP in the EU and euro area in the first quarter of 2023. In any case, Ireland’s key trading partners are projected to see historically low levels of growth in the year ahead. Euro area GDP is projected to grow by 1.1 and 1.6 per cent this year and next year. The UK economy is projected to contract by -0.2 per cent this year and to grow by 1 per cent next year. The German economy is projected to see very low growth of 0.2 per cent this year and 1.4 per cent in 2024.
The Commission assesses that this subdued external environment will mean that recent record performances in Irish exports will not be sustained in the coming years. In light of this, GDP growth is set to moderate to 5.5 and 5 per cent for 2023 and 2024, broadly in line with my Department’s spring forecasts published in the SPU. Of greater relevance to the domestic economy, Modified Domestic Demand (MDD) growth of 2 per cent and 2.3 per cent for this year and 2024 is projected by the Commission, generally in line with the Department’s spring forecasts. The Commission notes that private consumption supported by a very resilient labour market will be the main drivers of domestic growth. Indeed, unemployment reached a record low of 3.8 per cent in May, and consumption and investment outturns were stronger than had been expected in the first quarter of 2023. Headline inflation of 4.6 per cent and 2.6 is projected for 2023 and 2024. However, core inflation is projected to settle more gradually as food prices increase throughout the forecast horizon and wage pressures feed into services prices.
The Commission highlights a number of key external and internal risks, with the majority tilted to the downside. Inflation may remain persistent and further tightening of monetary policy in response could have knock-on implications for stability in the financial sector. Geopolitical risks and risks relating to potential for further fragmentation remain.
Overall, the Commission’s assessment of the Irish economy is broadly in line with my own Department’s assessment for 2023 and 2024 as published in the SPU in April. There may even be some upside to the Commission’s forecasts for MDD, as these forecasts were published prior to publication of the national accounts for the first quarter that showed a stronger start to the year than had been expected.