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Economy moderating after years of rapid expansion

Rising global trade tensions and direct competition for Foreign Direct Investment from large economies is already challenging Ireland’s growth potential.

This is according to business group, Ibec, which is calling for a renewed focus on the economy’s long-term potential sources of growth.

In its latest economic outlook, the group notes that the economy is showing signs of moderation after five years of rapid expansion.

However, it says the short-term outlook remains positive with expected growth in Gross Domestic Product (GDP) terms of 2% this year and 2.7% next year.

The group is forecasting that consumer spending will continue to reflect rising employment and wages by growing at between 2.5% and 3% this year and in 2025.

This year will be the first in the past three years in which wages will outpace the increase in inflation, the report points out, with the rate of consumer price increase back under 2%.

Together with the support of significant household savings, Ibec expects a ‘positive but uneven’ picture for the consumer economy in the coming 18 months.

On trade, the business group is forecasting a strong recovery in exports this year with growth in both goods and services exports of in excess of 5%.

That follows a year in which exports fell by 4.8% on the back of a falloff in sales of BioPharma products.

The recovery in the sector saw overall goods exports in the first five months of this year rising to €91 billion – up 10% on 2023 levels and 4% on 2022 levels.

The report notes that the longer-term outlook for Irish trade is heavily reliant on global developments, primarily the outcome of the US election in November.

Donald Trump has indicated his intention to introduce an ‘across the board’ tariff of 10% on all imports, if elected.

“From an Irish perspective, the broader direction of travel towards a diminution of the level playing field in international trade and investment is a clear risk for our open trading economic model,” the report states.

It notes that warnings about stalling global Foreign Direct Investment (FDI) are being heightened by concerns for the Irish FDI model.

“Key amongst those concerns is growing capacity constraints on infrastructure. Without action this is the single largest threat to our potential growth in incomes and tax revenues in the coming years.”

The report says Ireland has potential to compete with a skilled workforce and significant improvements in national infrastructure.

However, it emphasises that national policy must be ambitious in addressing capacity constraints.

“Too often, the focus is on cost efficiency in large-scale projects, but the greater and more immediate risk to economic growth, social cohesion, and fiscal stability lies in our failure to complete these projects,” Ibec’s Head of National Policy and Chief Economist, Gerard Brady, said.

“Successfully addressing housing, transport, and water infrastructure, making strategic decisions on funding education and skills, and setting out a transformative vision for our energy future are generational opportunities for Ireland. Unlike in the past, we now have the chance to make decisive progress.”

Mr Brady said the Government had a choice in the budget between investing in the economy and infrastructure over the next five years or using the surplus to put money in people’s pockets.

“Budget 2025 should prioritise global competitiveness by enhancing investment offerings, fostering innovation, and investing in critical skills and infrastructure to drive our economy forward. This can only be achieved by addressing strategic priorities rather than diluting resources with widespread handouts,” he said.

Article Source – Economy moderating after years of rapid expansion – RTE

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