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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.
In brief
- Positive economic outlook for the Republic of Ireland, with activity in Northern Ireland set to pick up over the forecast horizon.
- Some respite in store for households and businesses as inflation moderates.
- Labour market conditions are expected to remain tight.
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.
Continued economic expansion is expected in ROI, albeit at a more moderate pace than the exceptional growth of recent years. The global recovery is fragile and tighter monetary policy is a headwind, but the waning of the energy price shock is a tailwind for households and businesses alike.
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.
The all-island economy has demonstrated its resilience and has plenty of strengths to leverage in support of sustainable and inclusive growth, including a skilled workforce, world-class universities and a business friendly environment, all of which are key in terms of attracting and retaining FDI as well as enabling and empowering indigenous entrepreneurial talent.
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.
The all-island economy: grounds for optimism?
Economic Eye, Summer 2023 Forecast
Summary
After the volatility of the past few years, the situation is calming and there are grounds for optimism on the economic front. Measures to boost the workforce and a focus on the critical energy and infrastructure areas will be important to ensure sustainable growth into the future. Learn more about the economic outlook for 2023 and beyond, download our summer forecasts here.