A REPORT FROM the Economic and Social Research Institute (ESRI) has forecast core inflation in 2023 to be almost as high as this year and has warned of disruptions to Ireland’s exports.

In its quarterly economic commentary for Winter 2022, the think tank warned of recession risks amongst Ireland’s main trading partners, persistent cost-of-living pressures and core inflation of 7.1% for next year.

Core inflation is the average increase in prices excluding fuel and food, which can fluctuate from month to month.

This is slightly lower than the 7.9% core inflation that Ireland is estimated to have experienced in the 12 months to the end of 2022.

One of the report’s authors added that while Ireland would be unlikely to enter a recession next year, the slowdown in our economic growth would be “really considerable”.

A recession is a decline in Gross Domestic Product (GDP) for two economic quarters in a row.

Ireland’s GDP and Gross National Product (GNP) are both forecast continue to grow in 2023, but at far smaller rates than in the previous two years.

Due to the large amount of multinational companies located here, most statisticians agree that measuring Ireland’s economic health in terms of GDP is more unreliable, as it  still takes into account the wealth that leaves the country.

This year’s GNP is forecast to have grown by 11.1%, while next year’s growth will be only 1.7% according to the ESRI forecast. 

Trade

Commenting on the report, author and research professor Kieran McQuinn stated:

“The significant challenges confronting the Irish economy in 2023 means inward foreign direct investment must continue to be supported given its importance to the domestic economy.” 

One possible risk for 2023 the report highlighted was Ireland’s economic dependence on the Information and Communications Technology (ICT) and pharmaceutical sectors.

Pharmaceutical-related products accounted for 55% of Ireland’s exported goods this year, while ICT services made up 56% of exported services.

The ESRI noted that both sectors are especially vulnerable to changes in the global market and that Ireland’s biggest trading partners, including the US and EU were at risk of recession.

Irish exports grew by 13.5% this year, but are expected to grow by only 5.2% next year.

The UK Government has already announced that the country has entered a recession, a fact which incoming Taoiseach Leo Varadkar has admitted will harm Ireland.

Varadkar said the UK’s finances were “very bad news”, as “anything that happens in their economy will affect ours.”

He blamed the war in Ukraine, Brexit and some recent policy decisions by the UK government, but asserted that the UK wouldn’t drag Ireland into a recession along with it.

“Our economy decoupled from theirs a long time ago … it’s still our expectation that next year our economy will grow slightly and employment will continue to grow as well,” Varadkar said.

Jobs 

The risks inherent in the ICT sector become clear this year when Meta, Stripe and Twitter laid off staff globally and at their respective headquarters in Dublin.

IDA chief executive Mary Buckley reassured other tech workers at the time saying: “We may not see the same levels of growth per annum, but we have a strong base of FDI companies here in Ireland.”

When either the tech or pharmaceutical sector experiences a shock it will have a major impact on the overall economy here, the ESRI report noted, predicting that if the war in Ukraine doesn’t deescalate next year further government intervention will be needed to keep households afloat.

“There may be a need for further one-off cost-of-living measures in the winter of 2023 if energy price pressures persist,” the ESRI noted, acknowledging that the government’s finances should be able to cope with this.

This could mean a repeat of the €4.1 billion spent on lumpsum social welfare payments, tax credits for renters and the Temporary Business Energy Support Scheme among other measures.

Tax receipts grew strongly this year, while €2 billion was set aside in a “rainy day fund” and a further €4 billion will be set aside in 2023, which the ESRI believes will prevent Irish households from feeling global economic pressures as badly as other countries.

In the labour market, the unemployment rate has fallen to a near historical low of 4.4% in the last quarter of this year and the ESRI anticipates employment to remain strong throughout 2023.

Foreign investment in Ireland remained strong this year, especially in construction, which accounted for more than half of the €13 billion invested here in the last quarter of the year.

The ESRI attributed this investment to the “strong outturn for housing completions” this year but estimated that inflation, labour shortages and a worsening global economy wouild lead to less investment in 2023 and a decrease in new homes built.