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Output to surpass pre-virus levels in most economies
Central Bank Governor Gabriel Makhlouf Pic: RollingNews.ie

24 Jan 2022 / ireland Print

Output to surpass pre-virus levels in most economies

Speaking to the Institute of Directors, Governor of the Central Bank Gabriel Makhlouf has said that globally, the output of advanced economies will converge to pre-pandemic trajectories.

Latest OECD projections forecast global growth to moderate from 5.6% in 2021 to 4.5% in 2022 and 3.2% in 2023, with output surpassing pre-pandemic levels in most advanced economies.


In the euro area, as mobility returns toward pre-pandemic levels, growth is expected to pick up strongly again this year, before slowing towards more historical average rates in 2023 and 2024.

The Irish economy is in good shape, he added, and proving very resilient to the pandemic.

“Each successive wave of the virus is having a reduced economic impact, and we expect this trajectory to continue,” he said.

Recent restrictions have also caused some disruption, but they have not dampened or derailed the overall momentum of the economy. 

Households and firms have invested and learned to adapt quickly to surges in cases.


Retailers who made significant investments in e-commerce and delivery logistics have been able to continue trading despite a decline in footfall. 

Household money on deposit remains at high levels and will support consumption and investment in the future.

As a result, we are seeing a strong growth in domestic demand, led by consumption, supported by rapidly improving developments in the labour market, with high levels of labour force participation and employment. 

Pharma and IT drive over 50% of Irish exports but exports by Irish firms also recovered in line with global demand with a positive impact on the whole of the Irish economy, and the public finances.

2021 saw exceptional employment growth, with year-on-year increase of about 9% in Q2 and Q3.

Unemployment fell markedly but some additional labour capacity remains, and contact-intensive sectors are yet to recover to pre-pandemic levels of hours worked.

“Over the longer term we will need a certain level of migration to sustain growth in the economy,” the Central Bank Governor said.

Labour force

Female labour force participation now stands at its highest level on record, exceeding pre-virus levels, and the labour force increased by 7.9% annually to Q3 2021.

Personal consumption will continue to grow strongly, he said. 

“At an aggregate level, the economy is expected to reach full potential over the coming years,” he said, despite stress in some sectors given higher operating costs and labour shortages.  

Inflation will also “remain elevated” in the near term, the Central Bank Governor said, above 2% for most of this year but settling below 2% in 2023 and 2024.

“Distinguishing between broad-based changes in the general price level and idiosyncratic, temporary, relative price changes is important when thinking about inflation in months and years to come,” he said, pointing to “spectacular” increases in energy prices.

The latest data shows that the price of gas in Europe increased by 470% on an annual basis. The price of Brent crude oil and coal were up 87% and 140%, respectively.

However, current high rates of consumer price inflation should ease later this year, as supply chain issues unwind and energy prices stabilise, he said.

Bottlenecks to ease

“The acute pandemic-related effects should dissipate and bottlenecks should fade over time,” he added.

While energy prices are expected to moderate, consumers may feel a lag between wholesale and consumer prices.

Humility is warranted in making predictions, he said, since geopolitics and longer weather patterns are hard to predict.   

“The fact that the Irish economy will reach capacity over the horizon means dynamics will change in the coming years,” he said.

Domestic policy issues

Domestic policy issues such as housing, labour market policy, the path to net zero and the overall stance of fiscal policy will influence the potential for a sustainable growth in living standards as well as in maintaining Ireland’s competitiveness.

He predicted rapid economic, technological and financial change over the next decade, driven by an ageing society and the move to different ways of working.

“It is a future of complexity and uncertainty but also of opportunity,” he said.

Gazette Desk
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