The Central Bank predicts that domestic demand will grow by 5.5% this year (from 3.4% previously), and by 7.1% next year (from 5.6% previously), in its fourth quarterly bulletin of 2021.

Director of Economics and Statistics Mark Cassidy said that the economic rebound will be followed by a sustained period of robust growth, in a more positive outlook than given in the previous bulletin.

Domestic consumption, investment and employment are currently growing at a pace at or above what was expected at the time of the last quarterly bulletin. 

“We now expect domestic economic activity to be back to pre-pandemic levels this year and broadly to where it would have been in the absence of the pandemic by end-2023,” Cassidy said.

At the same time, businesses and households are facing higher costs and prices due to a combination of supply bottlenecks and surging demand, resulting in higher costs for shipping, energy and certain raw materials. 

While current drivers of inflation are expected to ease through 2022 and 2023, a stronger rebound in household spending, more persistent supply disruptions, or a slower labour supply response could result in higher inflation than currently anticipated.

“Promoting sustainable growth in Irish living standards requires careful management of domestic economic policy as it moves away from a focus on pandemic-related measures,” the Central Bank bulletin says.

The Irish economy has continued to recover strongly, and domestic economic activity is expected to recover its pre-pandemic level by the end of this year. 

Higher costs

In 2023, the growth rate is expected to decelerate slightly as economic conditions normalise, but it is still forecast to be 4.1%.

A recovery in consumption will play a substantial role in this, as household spending relative to incomes normalises.

Consumption is forecast to grow by 6.2% this year, and by 8.3% in 2022 and 5.1% in 2023.

GDP figures in Q2 2021 highlight the difference between the externally focused and the domestic economy, with net exports of predominantly foreign-owned multinationals in pharmaceuticals and ICT sectors driving headline growth.

Multinational Enterprises (MNEs) are forecast to remain the main driver of export growth, but strengthening world demand is also expected to lift domestic firms’ exports. 

GDP is projected to grow by 15.3% in 2021 as a whole, 7.2% in 2022 and 5.3% in 2023.

Evidence

Clear evidence of the improving economy can be seen in the labour market, with strong employment growth leading to a more rapid fall in the unemployment rate over the forecast horizon, the bulletin continues.

The unemployment rate is expected to average 7.2% in 2022, and to fall further to just under 6% by end-2023.