Ireland's economy will grow this year and next, with households seeing increase in real wages

Tivoli Cork

IRELAND’S ECONOMY IS expected to continue to grow over the next year and a half, while households are seeing an increase in real wages.

That’s according to the Economic & Social Research Institute’s (ESRI) quarterly economic commentary report published today. The ESRI is an independent research institute.

The outlook is supported by a positive international environment, “quicker-than-expected” disinflation and low unemployment.

The ESRI said it expects GDP, heavily influenced by the multinational enterprises, to grow by 2.5% this year and 3.2% in 2025.

Commenting on the report, Kieran McQuinn of the ESRI said for the first time in two years, Irish households will see an increase in real wages in both 2024 and 2025.

“This will support increased consumption levels in the domestic economy.”

Modified domestic demand (MDD), which the ESRI says is a more accurate measure of underlying Irish economic performance, saw a more moderate pace of growth in 2023 mainly because of lower rates of investment.

It expects MDD to grow by 2.2% in 2024 and by a further 2.9% in 2025.

Overall, the pace of inflation is continuing to decrease.

Compared to the higher inflation in many other European countries, inflation in Ireland is relatively low by some measurements.

“This, in combination with increasing nominal wages, has led to real wage growth for the first time in two years.

The ESRI expects Consumer Price Index (CPI) inflation to increase by 2% in 2024 and to drop below 2% in 2025. Accordingly, given increases in nominal wages, it expects real wages to grow by 2% in the current year and 3% in 2025.

“The Irish labour market remains strong,” the report continues, “with employment surpassing 2.7 million workers for the first time in modern history and unemployment standing at 4%.

“This suggests that the labour market is operating at full capacity, with limited potential for further growth in the absence of inward migration.”

Risks to the domestic outlook include potential geopolitical shocks in both Europe and Asia. Another risk is maintaining investment levels in the presence of certain capacity constraints.

Co-author Conor O’Toole added: “Ireland’s economy is likely to benefit from a more benign international outlook and a robust domestic performance. A main challenge will be addressing capacity constraints through investment without adding to price pressures.”