Employers’ group Ibec has upgraded its forecasts for growth in the economy this year in its latest Quarterly Economic Outlook.
It now forecasts that the domestic economy will grow by 3.6% this year while GDP is expected to grow by 5.2%.
It also expects inflation to be lower than previously forecast with consumer prices to fall to under 4% by the end of the year and to average out over the year at 4.5%.
It expects inflation to fall further next year to an average rate of 2.8%.
It says its forecasts on inflation depend on the price of energy stabilising.
It says there are “unknowns” this year around the global demand for LNG, which is transported by ship.
But it points out that gas storage levels in Europe are higher than in the past and should reduce price fluctuations.
Housing and public infrastructure remain Ireland’s “major economic and social challenges”, according to the report.
It does warn that higher interest rates will see a divergence in the performance of different sectors of the economy.
This, it says, will pose challenges for start-up companies and companies with high debt levels as well as parts of the property industry.
It also warns that as governments withdraw cost-of-living and business supports, this will trigger “further pressure and claims on resources for both businesses and households”.
It describes inward migration into Ireland as “a vital component of what little labour market slack remains after several years of rapid job growth”.
The report notes that the just under 30,000 work permits given to healthcare and social workers over the past five years makes up 9% of the total workers in the sector.
It also says growth in the ICT sector has only been possible with inward migration.
It says a little over half of the 40,000 work permits granted last year went to ICT, healthcare and social workers.
On working from home, the report says the proportion of workers who said they work mainly from home fell across most sectors last year.
IBEC’s Chief Economist Gerard Brady said the group updated its growth forecasts because the level of volatility in energy markets has “calmed considerably” since Christmas, while prices have started to come down.
Speaking to RTÉ’s Morning Ireland, Mr Brady said inflation is also reducing slightly.
However, he warned that there are still challenges ahead and a level of uncertainty remains.
The housing crisis is a major challenge for businesses, he said.
“We did survey our members before Christmas and about 70% of them said that it was one of their top three issues for 2023, in terms of the challenges we see of just hiring and retaining staff,” he said, adding that it is not just a Dublin issue.
Mr Brady said layoffs in the tech sector are also a concern, but IBEC would not be “as concerned about the long-term future of tech”.
He said it is a cyclical challenge for the sector, but he believes it will come out the other side and still be a strong growth sector for the economy.