The Irish economic outlook suddenly looks much rosier as falling inflation, an improved global backdrop, and increased output in both the multinational and indigenous sectors point the way to resilient growth.
avy has doubled its GDP forecast for 2023 to 6.9pc from 3.5pc as better-than-expected growth data at the end of last year signalled positive momentum would continue.
The stockbroker said 3.5pc GDP growth in the fourth quarter of 2022 and lower energy prices suggested Ireland’s rebound from the Covid crisis would continue and that a recession would be avoided.
“Most countries would be delighted with 3.5pc GDP growth for a whole year, let alone one quarter,” said Davy chief economist Conal MacCoille.
“A lot of that is the growth of the multinational sector but the recovery in the indigenous sector is far from complete. If lower gas prices are passed on to the consumer, inflation will be considerably lower and spending should rebound.”
Mr MacCoille said he expected consumer spending to grow 2.2pc this year as inflation continued to fall from the record highs of 2022. He added that the risk in his forecast for the domestic sector was to the upside.
Davy is forecasting an average inflation rate of just 4.7pc for the whole of 2023, meaning readings would have to fall to below 3pc by the last quarter, which would support expanded spending. Tuesday’s CSO flash estimate of inflation for January was 7.7pc.
Mr MacCoille said Irish GDP figures were still “a little detached from reality” due to the heavy influence of imported intellectual property assets by multinationals. But IDA reports of strong foreign direct investment flows supported a more broad-based growth story, he said.
On Tuesday, the International Monetary Fund also raised its global economic growth outlook for the first time in a year, forecasting that most of the world – with the notable exception of the UK – would avoid recession in 2023.
“The outlook is not worsened this time around, which in itself is good news,” chief economist Pierre-Olivier Gourinchas said. The fund cut its 2023 outlook three times last year. “But it’s not enough. There are still some challenges to get on our way to a sustainable recovery that is broad and long-lasting.”
Yet the risks are more balanced than in October, Mr Gourinchas said. One upside risk is stronger consumption, particularly in services, fuelled by pent-up demand from tight labour markets and government pandemic fiscal support. Conversely, inflation could fall faster than expected amid the shift in spending to services, allowing central banks to tighten less.
“We’re well away from any kind of global recession marker,” Mr Gourinchas said.
This view was buttressed by flash eurozone GDP figures on Tuesday showing the eurozone economy avoided contraction in the final quarter of last year, although household spending shrank.
Ireland’s robust growth performance was credited with pulling the eurozone up to 0.1pc growth instead of stagnating at 0pc.
“Eurozone growth would have fallen back to 0pc if Ireland wasn’t included,” said Bert Colijn, a senior economist at ING.
Additional reporting, Bloomberg
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