The Government has been warned of a forecasted sharp slowing in economic growth, and of falling corporation tax revenues, ahead of the Budget next week.
The Economic and Social Research Institute said today that it forecast gross domestic product (GDP) to fall by 1.6 % this year, mostly because of the disproportionate impact of the multinational sector.
The institute said that this was the first episode of negative GDP growth since 2012, and highlighted the threat to the Irish economy from the slowdown in international trade, as well as the impact on consumers of continued inflation and climbing interest rates.
The ongoing cost-of-living crisis and the slowing of exports led the ESRI to cut their forecast for domestic economic growth from a 3.5% to just 1.8 per cent this year.
They also pointed to the negative impact of inflation on the Irish economic outlook. “While the pace of price increases has been declining on a persistent basis to its present rate, we still expect the Consumer Price Index (CPI) to increase by 6 per cent in the present year and 3.2 per cent in 2024. This represents an increase on our previous forecast as inflation rates have not declined as rapidly as we previously expected,” the institute said.
Separately, the Minister for Finance, Michael McGrath, has reported that corporation tax will now fail to reach forecasted levels for this year, with receipts in the third quarter of 2023 falling by 23% on the same period in 2022 – a bumper year for tax revenues.
Minister for Public Expenditure, Paschal Donohoe, said yesterday that revenue from corporation tax in September was €300 million less than the same month last year, down from €1.8 billion.
As the international market slows, and the subsequent profitability and taxation from multinationals based here also contracts, Minister McGrath has warned that of dramatic changes to what has been as seen as lucrative corporation tax revenues.
He said that the days of surging corporation tax receipts were over, and negotiations with the Minister and his fellow Cabinet members including Paschal Donohue are expected to examine spending concerns such as the projected €1.1 billion overrun in health spending this year.
The domestic economy remains set for growth, the ESRI reported, saying that “modified domestic demand (MDD), which captures consumption and modified investment, is set to increase by 1.8 per cent in the present year.”
“While the economy is experiencing slower rates of growth, the Irish labour market continues to perform robustly, with unemployment stabilising at approximately 4 per cent over the past year. Notwithstanding, the moderation in activity domestically and the slowdown in international trade, the domestic Irish economy is presently operating at capacity, in particular in relation to employment intensive sectors like construction,” the institute said.