Ibec, the group that represents Irish business, has buttressed the conventional wisdom on the prospects for Ireland’s economy in 2023 with a forecast of 3% growth in domestic demand.
The Central Bank has pencilled in growth in Modified Domestic Demand of 2.2% through 2023, in line with the Department of Finance expectation.
At ESRI, the state-funded think tank, economists expect that MDD will expand by 7.5% through 2022 and then retreat to a growth figure of 2.5% in 2023.
Ibec’s Q3 Quarterly Economic Outlook blames the growth slowdown on high rates of inflation, rising interest rates, accelerated monetary tightening and volatile energy markets.
The Ibec views is that while Ireland will avoid a recession, households and businesses will feel the slowdown in many of our major trading partners.
In Association with
Chief economist Gerard Brady stated: “Whilst Ireland’s economic momentum in the first half of 2022 was extraordinarily strong, there are now several leading indicators which suggest the volume of activity in the consumer economy and labour market may be beginning to slow.
“Our forecast for consumer spending and investment in 2023 has fallen from 3.7% in July to 3% in our current forecast.”
Brady added: “Further monetary tightening by central banks carries risks for both financial stability and the broader global economy throughout next year.
“The ECB has emphasised its role in restoring price stability and reducing inflation over and above other economic outcomes. The success of that adjustment will determine the amount of economic retrenchment ahead in 2023 and beyond.
“The key question facing businesses planning for the year ahead is no longer whether this reset will be challenging, but rather how successful tighter monetary policy will be in bringing down inflation and how long the transition will take.”
Brady expects consumer spending in 2023 to grow by 3%, which would leave total consumer spending marginally ahead of its pre-pandemic level.
“Many goods that saw a significant fall in sales volumes over the summer have seen somewhat of a bounce back in early autumn, reflecting high volatility and uncertainty in consumer markets,” said Brady.
“With energy costs impacting most strongly in the winter months, the most significant impact on retail sales will be felt in Q4 2022 and Q1 2023.”
On exports, Ibec has pencilled in 3.5% growth next year, while growth in domestic investment is slated at 3.7%. The inflation expectation for next year is 5%, while Ibec is predicting that the unemployment rate will decline from an average of 4.7% for 2022 to 4.3% in 2023.
Brady explained: “Monthly payroll data from Revenue has seen three months of moderate decreases in the total number of payroll employees since early summer, down by 2% since May. This is mostly driven by declines in the estimated number of payroll employees in the hospitality, entertainment, and education sectors.
“Sectors which had seen high employment growth during Covid such as finance, ICT and professional services have all seen either no growth or a marginal decrease in total payroll employees. This suggests both a slowdown in new hiring and ongoing difficulty in sourcing skills to fill roles in a difficult hiring market.
“While these results may be early indicators of a slowdown of hiring in some sectors, the labour market as a whole continues to be extremely tight, with continued employment growth expected over the coming year.”
