Employers' group Ibec has said that the Irish economy is at a turning point, with "significant" concerns over cost pressures and a likely global downturn as growth momentum slows in the second half of the year.

Ibec's latest economic outlook found that the recovery seen during the first half of the year is being undermined by shifts in global capital markets and ongoing higher prices for commodities such as energy imports.

Feedback from Ibec members suggests slowdowns in consumer spending and investment are already underway, and will continue into 2023, and the organisation has forecast that growth in consumer spending will fall from 6.6% to 4% next year while domestic investment will drop from 8.6% to 4%.

Gerard Brady, head of national policy and chief economist at Ibec, said: "The Irish economy is at a turning point. Changes in the global environment – in commodity, energy and financial markets – are reshaping the global economy from the one we have recognised over the past decade.

"The era of record low interest rates, low inflation, and spare capacity we have lived through since the global financial crisis is being overturned. For Ireland, as a small open economy, shifts in the flow of capital through the global economy and slowdowns in our major trading partners can have an outsized impact on our growth model. Our members are already experiencing this through tighter capital markets and a greater focus on costs.

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“The outlook for Irish business is marked by growing concern at rapid shifts in our competitive position and growing labour market policy costs being imposed by government – which will most significantly impact on SMEs.

"This underlines the importance of controlling what we can here at home. As a society, we must plan for the long-term investments needed to grow our capacity and resilience in housing, energy, infrastructure and skills."

Ibec forecast that GDP would grow 7% this year before slowing to growth of 3.6% in 2023, while export growth would drop from 6.4% to 3.8% next year and, similarly, import growth would decline from 8.2% to 5%.

With regards to inflation, Ibec said that wholesale energy prices are now expected to increase this winter and that inflated energy prices will "become a structural feature of the European economy in the coming years."

However, softening of global commodity prices and shipping costs has been witnessed in recent weeks, driven by market supply adjustments following Covid disruption and slowing demand due to fears of recession.

After averaging 7.5% in 2022, annual inflation is expected to decline to 3.9% in 2023 while unemployment could drop from 5% to as low as 4.5% next year.

“There is a need to support those exposed to the downside of inflation," Brady added. "These supports should, however, be targeted at those businesses and households which are most in need.

"It is crucial that progress ongoing on an energy grant support scheme to help businesses through this challenging period is delivered in a timely manner. It is also crucial that the Government begin work on a time-limited labour market transition rebate, for companies which can show challenged viability due to State imposed increases in employment costs and regulation.

"This should come in the form of a temporary break from National Training Fund (NTF) payments and direct vouchers for training, skills, and productivity, funded from the almost €1 billion surplus in the NTF.”