Macroeconomic context for Budget 2025 EVENT ESRI

Transcript:Macroeconomic context for Budget 2025 EVENT ESRI:
Macroeconomic context for Budget 2025 EVENT ESRI Budget Perspectives Conference DATE June 13th 2024 AUTHORs Kieran McQuinn and Lea Hauser 2 Overview GDP declined in 2023 while the underlying economy – measured by MDD – is growing at a moderate pace Global economic conditions deteriorated throughout 2023 due to higher interest rates, persistent inflation, and geopolitical tensions A critical challenge will be managing the Irish economy in the future by dealing with infrastructure bottlenecks Exports and investment levels in the domestic economy have registered negative growth rates in 2023 mainly due to the slowdown specific MNE-related activities Inflation is expected to decline throughout 2024 with a return to growth in real incomes The labour market continues to perform robustly and is now operating close to capacity Public finances continue to be a strong position with growth in income tax and VAT, and levels of corporation tax remaining high 3 12 June 2024 Dual economy on divergent paths GDP & GNP Growth – Y-on-Y (%) GVA Growth – Y-on-Y (%), Foreign & Domestic Sectors 4 Nowcast of Modified Domestic Demand 2024Q1 MDD grew by 0.5 per cent in 2023 – underlining the moderate performance of the domestic economy Three consecutive quarters of negative y-o-y growth over the period 2023Q2 to 2023Q4 This indicator underestimated domestic activity in 2023 (see box explaining this by Egan) We expect MDD to grow by 2.3 per cent in 2024 Recent and Current MDD Nowcast (Y-o-y, %) 5 12 June 2024 Domestic Spending Growth in consumption is moderating with a clear downward trend A major factor in the downside pressure on the domestic economy in 2023 has come from inflationary factors eroding the real resources of households Savings rates have fallen back to more normal rates (after being elevated following the Covid-19 pandemic) Retail sales show a steady but sustained moderation in expenditure across all activities Ireland's final household consumption growth surpasses other EU countries, showcasing domestic resilience and robust performance Retail Sales – Growth across Subsectors Final Consumption of Households 2023 (y-o-y, %) 6 12 June 2024 Global Trade Slows Export growth from MNE activities has been the cornerstone of the extremely high growth rates of headline indicators in recent years In 2023, export growth dropped notably by nearly 5%, reversing these trends Irish export performance reversal is mainly due to sector-specific factors and globalization activities The moderation in activity is coming through the goods