The Irish economy is entering “a period of slower growth and business consolidation,” Ibec has warned. In its latest economic outlook, the employers’ group said “the change in trend” was driven by global economic conditions and was already being reflected in falling exports and slowing investment.
It also warned that “the full squeeze of higher interest rates on consumers and businesses is yet to come”. And while the Irish economy is not currently in a recession, “neither is it immune to the troubles of our trading partners”.
The European Central Bank (ECB) has raised interest rates 10 times over the last 18 months in a bid to tame inflation. Tighter financial conditions has triggered a slowdown in demand particularly in Ireland’s export markets. Exports have fallen by 6 per cent so far this year.
“Since 2019, the story of the Irish economy has been exceptional among developed economies in terms of enormous growth in both exports and large-scale investments,“ Ibec’s head of national policy and chief economist, Gerard Brady, said.
“This has culminated in the creation of 350,000 jobs, the strongest period of employment growth in the history of the State. These achievements should not be downplayed,” Mr Brady said.
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“However, the softening global picture will have an impact on the economy and is already being reflected in growing concern among Ibec members about competitiveness. Falling goods exports and slowing investment levels are two symptoms of the global slowdown which will persist in 2024,” he said.
The business lobby group said it expected the economy here to expand by a meagre 0.1 per cent in gross domestic product (GDP) terms this year, down from 9.4 per cent last year. This was still above recent forecasts from the European Commission and the OECD, which predicted the Irish economy would contract in 2023.
Central Statistics Office figures last week suggested the Irish economy has contracted in GDP terms for the last four quarters.
Ibec said it expected domestic demand, a proxy for the performance of the domestic economy, to grow at a more robust 3.2 per cent this year and by 2.3 per cent in 2024.
With growth slowing, businesses are likely to have a much greater focus on competitiveness, the organisation said.
However, it warned the Government that the fact it had committed businesses to billions of euro worth of additional labour market taxes, entitlements and regulations over the coming years “without any overarching strategy or consideration of the cumulative cost remains a major concern”.
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“This will result in cumulative increases in labour costs of more than 25 per cent in many heavily impacted firms over the next two years alone,” Mr Brady said.
“Even where individual measures make sense, like pension auto-enrolment or pay-linked unemployment benefits, the lack of co-ordination across Government has meant a raft of new measures arriving all at once,” he said.
In its report, it noted that the Government had agreed to increase the minimum wage by 12 per cent while failing to amend the PRSI thresholds as recommended by the Low Pay Commission.
“The direct ‘bite’ of many of these costs will be felt greatest in SMEs where the new ‘living wage’ will be worth over 70 per cent of their current median wages and in sectors such as accommodation, food service, personal services, the cultural sector, childcare, residential care, retail and in low margin parts of the manufacturing sector,” it said.
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