The Irish economy is nearing the peak of the current economic cycle and is on course to enter a period of more moderate growth, Ibec forecasts in its latest economic outlook.
The business group points out that while the pipeline of investment and demand remains strong, the economy is on track to experience a natural slowdown following the bounce-back in demand in 2022.
In addition, the lagged impact of rapid interest rate hikes is likely to feed through, as well as the gradual withdrawal of fiscal supports and the appearance of economic vulnerabilities in some major trading partners.
“Whilst the massive volatility of recent years of lockdowns, supply chain crises and inflation will soon be behind us, all those challenges will contribute to a softening of the macroeconomic environment,” Ibec said in its outlook.
Gerard Brady, Ibec’s chief economist said it was imperative that the resources available in the form of large Government surpluses are used wisely by storing them in a National Infrastructure Fund to be deployed over the next decade.
“During these periods, it is crucial to be cognisant of our vulnerabilities. Already costs are a more prominent concern for businesses than in recent years,” Mr Brady pointed out.
“It is important that we do not build top-of-cycle assumptions into either Government or business decision making,” he warned.
Following growth of 9.4% in Gross Domestic Product terms in 2022, Ibec is forecasting that GDP growth will slow to 3.2% this year and 3.3% next year.
It envisages inflation falling back to an average annual rate of 4.8% this year and 2.3% in 2024.
Domestic demand is on course to ease to 3.4% this year and 2.3% next year following growth of 11.6% in 2022.
“The most reliable data on the overall trend in the Irish economy comes from the labour market,” Gerard Brady said.
“In the year-to-date employment growth has been strong – up 4% annually, or 101,000 workers in Q1. However, some forward looking indicators are now suggesting that we may be seeing some slowdown in the pace of expansion,” he added.
Mr Brady pointed to an easing in new job postings following the post-Covid surge in 2022 and job vacancies falling back to more normal levels.
However, employment levels are expected to continue to rise, albeit at a moderate pace.
Wage growth is also expected to rise in real terms – after accounting for inflation – in the latter part of this year and into next year.
That is expected to be offset somewhat by by the impact of rising interest rates and rents for some households, which may have an impact on the growth in consumer spending next year.