Economic Outline

Economic Indicators

Since the end of the EU-IMF bailout in late 2013, Ireland has enjoyed steady economic growth and positioned itself as the fastest-growing European economy, supported by strong domestic demand and the activities of multinational companies operating in the country. Following two years of double-digit growth, Ireland’s real GDP growth weakened significantly in the first half of 2023 to a modest 0.1% increase year-on-year. For the year as a whole, the IMF estimated growth of 2% amid tighter financial conditions, supply-side constraints, and weakening external demand (although the latest Irish Central Bank projection was at 1.5%). GDP is expected to accelerate by 3.3% in 2024 and 3.2% in 2025, underpinned by increased external demand, buoyed by a robust labour market and rising real wages, which are expected to bolster consumption levels.

Public finances remained sound over the course of the year: the general government budget balance remained in surplus in 2023, at 2.6% of GDP as per the IMF (0.9% according to the EU Commission's latest figures). This year and the next the surplus is expected to contract to 1.8% of GDP. Revenue growth during these years is anticipated to be sustained by resilient, albeit slower, private consumption. Additionally, the gradual phase-out of VAT discounts is projected to contribute to revenue increases. Expenditure growth in 2024 should be propelled by investment plans and substantial social spending initiatives. The Budget for 2024 outlines a comprehensive strategy aimed at addressing both short-term and long-term objectives. This strategy includes a deliberate and planned approach to public spending geared towards achieving economic, social, and climate aspirations, supported by a credible method for managing expenditure in the medium term. It also emphasizes the importance of maintaining flexibility to effectively address immediate challenges as they arise and continuing successful measures to mitigate the impacts of elevated inflation. The total Government expenditure ceiling for 2024 is set at EUR 96.6 billion, comprising core expenditure of EUR 91.2 billion and an allocation of EUR 4.5 billion for non-core expenditure intended to address externally driven temporary challenges. Due to the fiscal surplus and robust nominal GDP growth, the general government debt-to-GDP ratio is predicted to decline from 42.7% in 2023 to 39% in 2024, further decreasing to 35.7% in 2025 (IMF). During the initial nine months of 2023, Harmonized Index of Consumer Prices (HICP) inflation was elevated. The prolonged interval in the transmission of wholesale to retail prices for gas and electricity contributed to enduringly high energy costs in Ireland. Moreover, other prominent HICP categories similarly maintained heightened levels compared to the preceding year. For 2023 as a whole, the IMF estimated inflation at 5.2%. The inflation rate should decrease to 3% this year and 2.4% in 2025, reflecting the impact of the ECB’s monetary tightening and the moderation of growth and labour market tightness.

Throughout 2023, employment levels demonstrated resilience, remaining robust. The surge in employment was bolstered by an expansion in the labour supply, attributed to heightened female participation and inward migration, which significantly augmented the labour force. While additional employment growth is projected for 2024 and 2025, it is expected to occur at a more restrained pace, aligning with the sustained anticipated expansion of the domestic economy. The unemployment rate, estimated at 4.1% in 2023, should therefore record a marginal increase to 4.4% by 2025 (IMF). Wage pressures have been increasing, resulting in nominal wage growth of 5% in 2023 with a further increase to 5.5% expected in 2024. These trends reflect the constraints of a tight labour market and an adjustment of wages to compensate for the significant decline in real incomes observed in 2022. Overall, Irish citizens enjoy one of the highest GDP per capita (PPP) in the world, estimated at USD 126,905 in 2023 by the World Bank.

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