Jackie Cahill
Ceist:73. Deputy Jackie Cahill asked the Minister for Finance his assessment of the economic impact of the war on Ukraine on the Irish economy; and if he will make a statement on the matter. [20570/22]
Amharc ar fhreagraThursday, 28 April 2022
Ceisteanna (73)
Freagraí scríofa
First and foremost the Russian invasion of Ukraine is a humanitarian crisis. Along with the unjust loss of life, millions of people have been forced to flee their homeland. Meanwhile the combined impact of the war and the economic, financial and other sanctions represent a large supply-side shock, one which has reverberated throughout the global economy. Reflecting the negative spillover effects from the war, the IMF has recently revised down its global growth forecast for this year by almost one percentage point – and now expect growth of 3 ½ per cent.
For Ireland, the war in Ukraine is expected to slow, rather than derail the economic recovery. Whilst Ireland’s direct trade links with Russia and Ukraine are very limited, we are nevertheless highly exposed to indirect effects arising from the conflict. The primary channel through which the war is already having a negative impact on the Irish economy is through higher energy and commodity prices. Rising price levels have a real bearing on the cost of living for Irish households.
Consumer price inflation rose sharply to 6.9 per cent in March – the highest level recorded since 1984. As set out in the Stability Programme Update, inflation is expected to remain at an elevated level for the remainder of the year, peaking in the second quarter, before easing slightly over the rest of the year. As a result, average annual inflation is expected to be around 6¼ per cent for this year.
Facing significant inflationary pressure and economic uncertainty, consumers are expected to curtail expenditure and businesses are likely to postpone investment. Reflecting these dynamics, my Department has incorporated a 2¼ percentage point reduction in its growth forecast for this year – based on modified domestic demand - to 4¼ per cent.
Given the high level of uncertainty at present, my Department has also constructed an alternative more severe scenario in which oil and gas prices increase by 50 and 75 per cent relative to the central assumptions. Under this scenario, inflation would increase by an additional 2 percentage points to 8¼ per cent this year - peaking at 9¼ per cent in the third quarter – and 4¼ per cent next year. Such a scenario would result in a reduction in domestic demand by around 2 percentage point over the medium term and wipe out next year’s projected surplus.
In addition to the impact on prices, a number of Ireland’s key trading partners in Europe are highly dependent on commodities imports from Russia and Ukraine. If this disruption to trade was to persist, it could weigh on demand in several of Ireland’s key export markets, with knock-on implications for Irish exports.
My Department will continue to monitor developments in Ukraine and the broader spillover effects closely. Indeed a chart-pack containing information on the economic and fiscal impacts of the conflict can be found on my Department’s website. Further analysis is set out in the Stability Programme Update, which was published in draft form earlier this month.