Quarterly Economic Commentary, Winter 2024

Forecast overview

• As we approach the end of the year, the Irish domestic economy looks set to register strong growth in 2024. We expect modified domestic demand
  (MDD) to increase by 3.2 per cent in 2024 before growing to 4.1 per cent in 2025 driven by real income growth and higher housing investment.
• Overall gross domestic product (GDP) is expected to decline on the back of large intellectual property investment outflows and increased imports.
• Overall, the robust performance means that the labour market has seen a continued increase in employment, with unemployment near to its historically low rate. A research note to the Commentary by O’Shea (2024) looks at trends in the Irish labour share over the past 25 years.
• Exchequer receipts have also performed strongly in 2024. Even in the absence of the ‘Apple payment’, we believe the adjusted general government balance (GGB) will be around 2 per cent of GDP this year.
• However, for 2025, there are notable downside risks, in particular with the potential for the new US administration to implement the economic policies outlined during the presidential campaign. A box by Fitzgerald highlights the ongoing importance of US investment in the Irish economy.
• The prospect of a global trade war, given the Trump administration’s proposals on tariffs, the impact of taxation policy on intellectual property location, allied to the possible targeting of the pharmaceutical sector based in Ireland, could have particular implications for both activity levels in the domestic economy and for the Exchequer receipts.
• If these impacts materialise more quickly than expected, particularly those on the public finances, some aspects of planned future expenditure levels outlined in Budget 2025 may have to be revised in the new year.
• While Budget 2025 had a welcome significant commitment to investment in the Irish economy going forward, there were other elements in the Budget which could have been more targeted, as suggested by Doorley et al. (2024).
• With house prices experiencing a resurgence in the present year, the Commentary devotes a significant amount of attention to house price dynamics. A box by Egan and McQuinn assesses the sustainability of recent movements while a special article by Kumar Verma and McQuinn (2024) examines the potential influences on house price expectations.