The European Commission has maintained its expectations for the performance of the Irish economy this year with a predicted GDP growth rate of 1.2%.
In its Spring 2024 Economic Forecast, published today, the Commission has also forecast GDP growth of 3.6% for 2025, up from 3.2% predicted in the Winter Economic forecast which was published in February.
The Commission said that Modified Domestic Demand – which better reflects the underlying domestic economy – is set to expand by 1.7% in 2024 and by 2.4% in 2025.
It noted that the Irish economy weakened significantly last year with a decline of 3.2%, mainly due to the weak performance of specific multinational-dominated sectors.
Today’s EU’s economic forecast said that consumer sentiment and retail sales data indicated a modest pick-up in consumer demand in the first few months of thisyear.
It added that easing inflation, a robust labour market and a recovery in real incomes are also expected to support private consumption growth.
The Commission also said that headline inflation is set to continue easing to 1.9% this year and 1.8% next year from 5.2% in 2023 – a little lower than predicted in the Winter forecast.
But it cautioned that underlying price pressures remain strong and continued wage growth is expected to sustain services inflation. As a result, HICP inflation excluding energy and food is set to moderate more gradually over this year and next, it added.
Meanwhile, exports are also set to rebound after a decline in 2023 due to weak external demand and sector-and-product specific factors.
It noted that pharmaceutical exports slowed down after the surge during the Covid-19 pandemic and semiconductor exports also declined.
A fall in contract manufacturing – goods produced outside of Ireland on behalf of Irish resident firms – also contributed to the downturn last year.
It said that exports are set to grow this year in line with global trade prospects, despite still being held back by the negative carry-over from last year.
The Commission also predicted that the country’s budget surplus is projected to decrease marginally both in 2024 and 2025.
For the EU as a whole, the Commission’s Spring Forecast projects GDP growth this year at 1% in the EU and 0.8% in the euro area.
In 2025, it predicts that GDP will accelerate to 1.6% in the EU and to 1.4% in the euro area.
Meanwhile, HICP inflation is expected to fall from 6.4% in 2023 to 2.7% this year and 2.2% in 2025.
In the euro area, it is projected to decelerate from 5.4% last year to 2.5% in 2024 and to 2.1% next year.
The Commissioner for Economy, Paolo Gentiloni, said that the EU economy perked up markedly in the first quarter, indicating that it has turned a corner after a very challenging 2023.
“We expect a gradual acceleration in growth over the course of this year and next, as private consumption is supported by declining inflation, recovering purchasing power and continued employment growth,” the Commissioner said.
“Government deficits should inch lower following the withdrawal of almost all energy support measures, but public debt is set to increase slightly next year, pointing to a need for fiscal consolidation while protecting investment,” he added.
“Our forecast remains subject to high uncertainty and – with two wars continuing to rage not far from home – downside risks have increased,” he added.
