Quarterly Economic Commentary, Summer 2024

The Irish Economy – Forecast Overview

• Headline and underlying indicators of the Irish economy both suggest the economy will grow in a robust fashion in 2024 and 2025. This is driven by a better-than-expected international outlook and robust domestic growth.
• We now believe MDD will grow by 2.2 per cent in 2024 and by 2.9 per cent in 2025. This is largely influenced by an expected increase in real income this year and next of approximately 3 per cent per annum.
• Underpinning this increase in real income is a strong expected increase in nominal income and a continued deceleration in the rate of inflation in both 2024 and 2025 of 2.3 and 1.9 per cent respectively.
• The unemployment rate, another key indicator of underlying growth in the economy, is now set to fall to 4.1 per cent in 2024 and to 4.0 per cent in 2025.
• The Commentary highlights the important role played by net inward migration in increasing the labour force in the domestic economy and, by association, the potential output of the economy.
• Risks to the outlook emanate from the continued tensions in the geopolitical situation which, if escalated, could have significant implications for a small open economy such as Ireland’s.
• Given the low rate of unemployment and the robustly growing domestic economy, the issue of capacity constraints is critical. Recent data from the Housing Commission suggest an upward revision in housing supply targets will be needed to cater for demographic demand for housing.
• Overall, it is evident that while housing supply is on an upward trajectory, it needs to increase at a faster pace if it is to meet the underlying demand for housing in the Irish economy. In addition to housing supply, critical infrastructure around the carbon transition will also draw on resources, putting pressure on labour in the construction sector in particular.