Government Outlines Economic Growth Forecast

/ 1st October 2021 /

The Department of Finance is forecasting higher rates of growth than expected ahead on Budget 2022, with the economy “rebounding quickly” according to the minister.

The headline results of the latest forecast are:

Modified domestic demand is projected to grow by 5.25% this year and by 6.5% in 2022
Modified Gross National Income is projected to increase by 4.75% this year and 5.25% in 2022
GDP is projected to grow by more than 15%, reflecting exceptionally strong export growth in parts of the multinational sector.

Minister Paschal Donohue (pictured) said: “The projections show that the economy is rebounding quickly and this is, of course, a very welcome development. The parameters for the Budget remain unchanged from that set out in the Summer Economic Statement — the overall package will amount to €4.7 billion, which is a very significant stimulus.”

As always, the projected GDP increase of 15.5% results from multinational activity, including a substantial increase in exports linked to contract manufacturing, with very limited impact on domestic added value in Ireland itself. Both GNI at 4.75% and MDD at 5.75% are a more realistic measure of economic activity.

The strong rebound has been accompanied by rising inflationary pressures. For 2021, headline HICP inflation of 2.3% is expected, with 2.2% forecast for next year.

By year end the unemployment rate is forecast to be just over 9%. In 2022, officials expect the unemployment rate to fall to just under 7% by Q4, still higher than the pre-pandemic rate of around 5%. Employment is expected to grow by 275,000 jobs through 2022.

Exports should increase by more than 16% this year, driven by a number of globalisation-related distortions, and by almost 6% next year, reflecting a significant deceleration in ‘contract manufacturing’ activity and the planned full introduction of Brexit-related customs checks.

However, exports from the ICT sector are expected to remain robust and travel and tourism exports should rebound sharply next year, according to Donohoe.