ESRI, the state-funded think tank, has chimed in with the official consensus of economy slowdown, as Ireland looks set for a decline in growth in 2023.
Like the Department of Finance and Central Bank, ESRI economists expect that Modified Domestic Demand (MDD) will expand by 7.5% through 2022 and then retreat to a growth figure of 2.5% in 2023.
The gloomy forecast from ESRI is based on what might happen next year. Based on current trends identified in the Quarterly Economic Commentary, predictions of a sharp slowdown in growth may prove to be wide of the mark.
Investment is forecast to increase by 5% next year compared with the expected 23% growth in 2022, reflecting what ESRI terms “the deteriorating international outlook”.
However, the think-tank also notes that modified investment, which excludes investment in aircraft leasing and investment in R&D-related intangible assets, increased notably in Q2 2022.
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The overall rate of investment increased by 33% through Q2, with strong growth in construction investment and other investments such as machinery and equipment.
“Considering the trajectory of investment in these two areas it is clear that the acceleration in investment is occurring in non-construction activity in Q2 2022,” the quarterly bulletin states.
“The fact that this series is increasing markedly is particularly notable as this represents a continued strong capital commitment to the Irish economy of firms operating here despite the international slowdown.”
The ESRI research also references the year-on-year growth rate in Gross Fixed Capital Formation for Ireland compared with the EU27 bloc of countries for the period 2021-2022.
The EU growth rate slowed from 4% in Q1 2022 to 3% in Q2 2022, while in Ireland there was accelerated growth of nearly 30% on a year-on-year basis.
ESRI economists speculate that the fact that Irish sentiment is dropping but investment has continued to rise is likely due to compositional effects in sectoral performance and challenges across firms in the economy.
For example, multinational firms may be experiencing less difficulties than other businesses in the current environment.
“Notwithstanding the international uncertainty, the domestic economy continues to demonstrate an extraordinary degree of resilience, with modified investment and exports continuing to perform strongly in 2022,” said the bulletin.
On housing, the ESRI view is that as supply levels are set to remain below underlying demand, it is unlikely that the market is going to witness a significant fall in prices, despite the rise in borrowing costs.
Nevertheless, Kieran McQuinn, one of the bulletin contributors, believes that on the basis of his modelling house prices will come under pressure once pandemic savings are exhausted.
