Two new reports have predicted a sharp fall in growth for the Irish economy as risks of a global recession rise, and cost of living pressures reduce real incomes.
The ESRI said that growth in the domestic economy has already been slowing throughout 2022, but that it would experience a severe drop in 2023. While growth of 8.4% was likely for 2022, that was expected to slump to just 2.2% in 2023.
The think tank also predicted that inflation would average 7.1% next year – higher than they had previously predicted.
Separately, the Organisation for Economic Co-operation and Development (OECD) predicted that economic growth, as measured by Modified Domestic Demand, would be just 0.9% next year.
The ESRI said that several challenges faced the domestic economy in 2023 – naming “recession risks amongst Ireland’s main trading partners, persistent cost-of-living pressures and increases in monetary policy interest rates” as negative effects on growth.
They also highlighted that the “international challenges in key sectors such as ICT add to the downside risks facing the Irish economy”, particularly because of the increasing concentration risk the country faces due to our reliance on multinationals who headquarter and pay tax in the country.
Earlier this year, the Department of Finance warned that while corporate tax receipts have more than doubled in just five years, there was a risk that too much of that was sourced from a small number of large players – mostly multinationals.
“The concentration of receipts within a small number of firms is an additional vulnerability – the latest data show that over half of corporate tax receipts is paid by just ten large payers. This means that €1 in every €8 of all tax collected by the State is directly sourced from just ten large corporate tax payers, a major concentration risk,” the Department said.
Global concerns about a looming recession are already impacting multinational ICT companies in Ireland, the ESRI notes.
“Recently, there have been a number of high-profile job losses amongst ICT companies both in an international and domestic context. Firms such as Twitter, Meta and Stripe have all announced significant reductions in employment numbers both in their international operations and their Irish offices.”
“This has sparked some concern that the ICT sector is set to experience a significant contraction after a period of sustained employment growth throughout the COVID-19 pandemic. Such a contraction has particular resonance for the Irish economy, as a number of commentators have identified the major contribution of this and other multinational sectors to the growth performance of the Irish economy in recent years,” the think tank said.
Commenting on the report, author Conor O’Toole of the ESRI stated:
“Cost of living pressures for households and higher input costs for businesses are likely to dampen the growth prospects for Ireland in the coming year. While the government has room to manoeuvre from a fiscal perspective, considerable care will be needed to ensure any policy response is tailored and targeted.”
Figures from the CSO this week showed that annual house price growth had slowed to a 15-month low of 9.8% year on year to October – down from a peak of over 15% earlier this year and 10.7% in September, the CSO said.
House prices grew just 0.4% in October 2022 from the previous month, which represented a six-month low, the CSO data showed.