A gloomy forecast from the Central Bank of Ireland is predicting moderate economic growth in Ireland of 2.2% in 2023 from an expected 6.4% this year.

The pessimism is in tandem with the thinking of the Department of Finance, which has also pencilled in growth in Modified Domestic Demand of 2.2% through 2023.

MDD is now the preferred economic growth metric being used by Ireland’s policymakers, instead of GNI, GDP or GNP.

The CBI’s final Quarterly Bulletin of 2022 reports that a large increase in investment in the first half of 2022 means that its forecast for MDD for the full year 2022 is revised up. However, the expected growth during H2 has been revised down. 

Robert Kelly, acting director of Economics and Statistics, said the drag of higher inflation on disposable incomes is expected to maintain through to the first half of 2023 and ease thereafter.

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“Average real household incomes are forecast to fall by 3.3% this year, and to remain relatively flat next year as a whole,” said Kelly.

“This expectation, coupled with more precautionary savings, means that consumer spending is projected to grow at a slower pace than previously predicted, particularly in 2023.”

The CBI’s thinking is that though the labour market is performing well, higher consumer prices and business costs are expected to impact both household spending and business investment in the short-term. 

The regulator believes that as inflationary pressure starts to ease through 2023, domestic growth will pick up again.

Consumer price inflation forecasts have been revised by the Central Bank up to 8.0% in 2022 and 6.3% in 2023.

These revisions reflect the expectation that the pass-through of energy to other parts of the consumer basket will continue for some time.

Inflation excluding energy is forecast to average 4.4% in 2023, up from the 3.8% predicted forecast in the July Bulletin.

Export growth is expected to moderate to 8.2% in 2023 from 14.2% in 2022, which will keep the GDP number ticking upwards.

Kelly added: “There remains upside risks to the inflation forecast and downside risk to the growth forecast. A more intense and protracted war in Ukraine or a further deterioration in energy or food supplies would result in lower growth and higher inflation than outlined in the baseline forecast.

“A less favourable growth path for the UK would have slightly negative implications for the growth forecast, while a larger appreciation of the euro vis-à-vis sterling would imply weaker inflation than currently forecast.”