Ireland’s gross domestic product is set to contract this year, but its domestic economy is expected to grow, according to the Economic and Social Research Institute.
(Bloomberg) — Ireland’s gross domestic product is set to contract this year, but its domestic economy is expected to grow, according to the Economic and Social Research Institute.
GDP will contract by 1.6%, influenced by international factors including rising inflation and high interest rates, the institute said. That would be the first year the economy fails to expand since 2012, according to the institute.
However, the ESRI is also predicting that the domestic economy will continue to grow in 2023 and into 2024. Modified domestic demand, or MDD, which the institute describes as a more accurate reflection of domestic activity, will increase by 1.8% in 2023, it said.
GDP is not generally considered to be a good indicator of the Irish economy due to the out-sized impact of foreign-owned multinationals.
This highlights the “dual aspect of the Irish economy, the twin track for both the domestic sectors and the multinational sectors,” ESRI Associate Research Professor Conor O’Toole, told reporters.
Economic growth is usually overstated by the of the large number of multinationals present in Ireland, however it currently it is understating activity in the domestic economy, according to the ESRI.
Last month Ireland’s central bank downgraded growth forecasts in its quarterly economic bulletin. MDD is now seen expanding by 2.9%, down from a forecast of 3.7% in June. It also had a 2.9% estimate for GDP.
While the Irish economy is operating close to capacity, it “does look set to experience more moderate rates of growth over the short to medium-term,” said Professor Kieran McQuinn, who authored the ESRI report.
The body expects inflation to continue to negatively impact output and predicts the consumer price index will increase by 6% in 2023 and 3.2% in 2024 given interest rates have not declined as quickly as it previously forecast.
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