Positive outlook for Ireland’s economy in 2024 and 2025, with robust labour market and declining inflation

We anticipate growth across all main economic activity indicators in 2024 and 2025. This comes despite discrepancies between Modified Domestic Demand (MDD) and headline indicators like GDP and GNP regarding the direction of change in Irish economic activity in 2023. We now believe MDD will grow by 2.3 per cent in 2024 and 2.5 per cent in 2025, while we anticipate GDP, heavily influenced by the MNE sector, to grow moderately at 2.5 per cent this year and 2.3 per cent in 2025. These developments are driven by two factors. First, we expect an improvement in the performance of the traded sector of the economy which had seen a decline in 2023. Second, we expect the domestic economy to continue to post modest growth for the coming two years.

The recent increase in the cost of living has been one of the major challenges facing the economy over the past two years. At this juncture, overall inflation is decreasing, primarily driven by the decline in energy prices. We expect this trend to continue and for consumer price inflation to increase by 2.3 per cent in 2024 and 2.0 per cent in 2025. This is compared with 6.3 per cent inflation in 2023.

The labour market continues to perform robustly and is now operating close to capacity. With the expected decline in inflation in 2024, we expect a return to growth in real incomes. Unemployment is expected to average 4.3 per cent in 2024 and 4.2 per cent in 2025.

While 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. 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.

Commenting on the report, author Prof 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.”

Commenting on the report, author Dr Conor O’Toole of the ESRI stated: “Consumer prices have increased very rapidly over the past number of years, creating notable challenges for many households. However, we expect prices to rise at a much more modest pace for 2024 and 2025.”