BY JOHN ELLIS, FINANCIAL ADVISOR
Things are looking up for the Irish economic landscape according to Ernst and Young’s forecasts for this year and next, with GDP poised to rise by 2.2% in 2024 and 3.8% in 2025.
Why is Ireland expected to outperform other major economies, even surpassing forecasts for euro area neighbours and the UK? A key driver is the healthy labour market with record employment numbers and projected job expansions of 1.6% in 2024 and 1.8% in 2025, indicating sustained economic vitality.
Furthermore, inflation, which peaked in 2022 and early 2023, is expected to moderate to 3% in 2024, offering relief to households and businesses. The easing of headline inflation, attributed in part to lower global energy prices and tighter monetary policies, signals positive developments for households and businesses.
In the eurozone, preliminary CPI figures showed that headline inflation remained steady in April at 2.4%. Experts anticipate further disinflation in 2024, which could alleviate pressure on consumers and support economic growth.
Encouragingly, the prospect of interest rate cuts by major central banks in 2024 bodes well for businesses, exporters, and mortgage holders, as it could potentially stimulate further investment and consumption. raising the likelihood of a first interest-rate cut in June.
The strong performance of Ireland’s labour market in 2023, in tandem with record employment figures and sectoral growth, underscores the economy’s resilience. Despite projected moderation in job growth for 2024, low unemployment rates and wage increases are expected to persist, posing challenges for recruitment and retention.
On the stock markets last week, we saw the Federal Reserve opting to hold interest rates steady. This was widely expected at the April Federal Open Market Committee (FOMC) policy meeting, but many investors paid more attention to Chairperson Jay Powell’s comments in the press conference than to the decision itself. Despite noting that the Fed was not gaining “greater confidence” progress had been made on inflation, Powell’s comments were well received by investors, as a rate hike in the next meeting was effectively ruled out, causing stocks to rally.
However, the economic forecast is not without its challenges. Graham Reid, Head of Tax & Law and Clients & Markets at Ernst and Young (EY) Ireland, emphasised the importance of capitalising on Ireland’s strengths, including a skilled workforce and a business-friendly environment, to attract foreign direct investment and foster indigenous entrepreneurship.
While global uncertainties loom large, and with the multinational sector accounting for more than 50% of Irish GDP since 2020, global shifts can have large local impacts. Even though economic forecast remains positive, driven by a resilient labour market, moderated inflation, and strategic investments we cannot be lax.
Dr O’Sullivan of Ernst and Young highlighted the importance of continuing strategic investments in workforce training, infrastructure, and green technologies to sustain Ireland’s economic competitiveness.
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