The Economic and Social Research Institute (ESRI) has revised its forecast for Ireland’s domestic economy, predicting solid growth in the next two years. Modified Domestic Demand (MDD) is expected to increase by 2.3% this year and 2.5% next year, providing a more accurate representation of domestic economic activity.
The slow growth rate of just 0.5% for MDD in 2022 was due to inflation and higher interest rates affecting spending and investment. However, the economy recovered strongly from the pandemic in 2023, only to slow significantly due to higher inflation putting a strain on households and limiting real pay growth. Real pay, adjusted for inflation, is an important measure of changes in living standards, and it is essential for economic growth and stability.
Gross Domestic Product (GDP) is typically used as a measure of economic performance, but it is heavily distorted by multinational activities in Ireland. In 2023, Irish GDP actually shrank by 3.2%, reflecting the impact of US pharmaceutical firms coming off their pandemic highs. The ESRI anticipates a rebound in Irish GDP over the next two years as global trade improves.
The think tank highlighted infrastructure bottlenecks as a critical challenge for Ireland’s economy moving forward. This includes issues related to housebuilding, renewable energy, and public transport. For example, plans for an underground rail link between Dublin Airport and the city center have been in the works for over 20 years, underscoring the need for timely and efficient infrastructure development to support economic growth and prosperity in Ireland.
In summary, while inflation and higher interest rates affected spending and investment in 2022 leading to a slow growth rate of just 0.5% for MDD, the ESRI predicts that Ireland’s domestic economy will see solid growth over the next two years with modified domestic demand increasing by 2.3% this year and 2.5% next year.
