The European Commission has sharply cut its growth forecast for the Irish economy this year, estimating that output contracted by 1.9 per cent in 2023 as a technical recession – defined by two consecutive quarters of negative growth – extended into the second half of the year.
The commission also cut its growth forecast for the Republic’s economy “substantially” from a previous projection of 3 per cent to just 1.2 per cent in 2024.
In its latest economic forecast for the European Union, it said overall EU gross domestic product (GDP) increased by an estimated 0.5 per cent in 2023, down from a previous estimate of 0.6 per cent.
GDP is estimated to have declined in 11 of the 27 member-state economies as they grappled with declining output and investment amid a sharp rise in European Central Bank interest rates over the past 18 months.
The commission said the bloc’s economy entered 2024 “on a weaker footing than expected” also due to weaker household purchasing power, a consequence of still-elevated consumer prices.
However, headline consumer price inflation is now expected to fall sharply in 2024, the commission said, from 6.3 per cent in 2023 to 3 per cent in 2024 and 2.5 per cent in 2025. “Lower energy commodity prices, weaker economic momentum and recent inflation out-turns set inflation on a lower path, lower than was anticipated last autumn,” EU economy commissioner Paolo Gentiloni told reporters in Brussels.
In Ireland, the commission said: “Inflation decelerated notably in the final months of 2023, largely driven by the pass-through of falling wholesale energy prices to consumers. Annual inflation in 2023 averaged 5.2 per cent and is projected to ease further over the forecast horizon as energy prices and commodity prices recede.”
Electricity, gas and other fuel prices in the Republic declined 12.9 per cent over the 12 months to the end of January, according to separate figures published by the Central Statistics Office (CSO) on Thursday.
“Overall inflation is projected at 2.2 per cent in 2024 and 1.9 per cent in 2025, lower than forecast in autumn,” the commission said, although it added that domestic price pressures are expected to remain a feature this year due to “tightness” in the labour market.
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Last year’s downturn, which saw the economy enter a technical recession in the second quarter of the year, was largely due to a contraction in exports from the pharmaceutical sector and in contract manufacturing within the Republic, it said.
Consumer spending, meanwhile, remained “resilient”, according to the commission’s estimates, as did the labour market, giving the Republic’s economy a strong foundation into 2024 when exports are expected to rebound.
CSO figures published on Thursday showed the value of Irish exports fell 6 per cent last year to some €197 billion amid a steep decline in foreign sales of organic chemicals, thought to be due to a fall-off in international vaccine sales post-pandemic.
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