The all-island economy: grounds for optimism?

The all-island economy remains resilient as it faces into the remainder of 2023 and beyond. Continued growth and employment and moderating inflation are all causes for optimism.

The all-island economy has been hit by several external shocks in recent times, from a global pandemic to the war in Ukraine. With the dust beginning to settle on these, the EY Economic Eye Summer 2023 report is forecasting solid growth in the Republic of Ireland (ROI) and a gradual improvement in Northern Ireland (NI) over the coming years.

EY all-island economic growth forecasts

Modified Domestic Demand excludes globalisation effects

Prospects for the ROI economy are good, with consumer spending, investment, and exports projected to increase over the period 2023-2025. Easing inflationary pressures, infrastructure, digitalisation, and decarbonisation agendas, along with trading partner growth and further job gains should support activity, even as higher borrowing costs work in the opposite direction.

In NI, where interest rate rises are taking a toll on the economy and public spending cuts are looming, growth is likely to be low this year before picking up in subsequent years.

Inflation past its peak

The cost-of-living squeeze is still being felt but inflation is now on a downward trajectory. EY expects it to fall to 2.0% by 2025 as lower wholesale energy prices feed through to households’ bills and firms’ production costs, and as tighter monetary policy feeds through to the real economy. That said, the process could prove bumpy.

Demand for workers is strong but supply is scarce

Employment has been rising and unemployment rates are in and around historic lows in both ROI and NI, meaning the labour market is tight. This has implications for employers, employees, and the economy.

For employers, it makes for reduced choice and greater difficulty in filling vacancies. However, there are ways to attract and retain the best talent, including offering flexibility, upskilling, and investing in new and existing workers. Organisations should also think outside the box and look to harness untapped labour potential.

For employees, it brings more opportunities and greater bargaining power. The pandemic has prompted a reassessment of priorities, with many people desiring greater flexibility in how, when, and where they work.

For the economy, it gives rise to risks. With available resources being rapidly used up and with some compensation for recent inflation, wage increases are on the cards. However, if a wage-price spiral were to occur, cost competitiveness would be damaged.