THE IRISH ECONOMY is set to grow this year and next with a decline in inflation increases. 

That’s according to the Economic & Social Research Institute’s (ESRI) quarterly economic commentary report published today. The ESRI is an independent research institute. 

A report by the ESRI in December confirmed that Gross Domestic Product (GDP) was expected to decline in 2023 by 2.7%. This was the first episode of negative GDP growth in Ireland since 2012.

Despite this, the ESRI said in its report today that it anticipates growth across all main economic activity indicators this year and next. 

Commenting on the report, author Professor Kieran McQuinn of the ESRI stated: “Unlike 2023, we expect all major indicators of economic activity to register positive growth in 2024 and 2025 indicating likely stable growth over the period.”

The ESRI believes modified domestic demand (MDD), a metric more commonly used in Ireland as it excludes the economic activities of multinationals, will grow by 2.3% this year and 2.5% next year. 

It anticipates GDP, which is very heavily influenced by the multinational enterprise sector, to grow moderately at 2.5% this year and 2.3% next year. 

The ESRI said these developments are drive by two factors. 

It said that first, an improvement can be expected in the performance of the traded sector of the economy which had seen a decline last year and second, that the domestic economy is expected to continue to post modest growth for the coming two years. 

Inflation

The ESRI said the recent increase in the cost of living has been one of the major challenges facing the economy over the past two years. 

However, at this juncture, overall inflation is decreasing, driven by a decline in energy prices, it said. 

The ESRI expects this trend to continue and for consumer price inflation to increase by 2.3% in 2024 and 2% in 2025. This is compared with 6.3% inflation in last year. 

The report has also outlined that labour market continues to perform robustly and is now operating close to capacity.

With the expected decline in inflation this year, the ESRI expects a return to growth in real incomes. Unemployment is expected to average 4.3% this year and 4.2% next year. 

The ESRI noted, however, that wjhile the outlook for the Irish economy is positive over the medium-term, “it is clear there are a number of challenges which need to be considered”.

It said these include geopolitical tensions and their impact on global trade flows, dealing with infrastructure bottlenecks in an economy operating at capacity, and efficiently managing a small open economy with a very large multinational component.