The Central Bank has lowered its forecasts for growth in the economy based on weaker exports from multinationals in Ireland, but has left its outlook for inflation broadly unchanged.
In its Quarterly Bulletin, published today, the bank also said the Government’s spending plans for the upcoming Budget risk adding to inflation.
The bank forecasts that inflation, measured by the Harmonised Index of Consumer Prices, will average at 5.4% this year, up slightly from its summer forecast.
It expects inflation will decline to 3.2% next year and 2.3% in 2025.
However, core inflation, which excludes energy and food, will remain at 2.7% in 2025.
It has revised its estimate for growth measured by Modified Domestic Demand, which captures activity in the domestic economy, down to 2.9% this year and 2.6% next year.
Exports of goods and services, which had grown by 13.9% last year are expected to slow to growth of just 0.2% this year, before returning to growth of 2.9% next year.
The bulletin points out that goods exports more than doubled in value in the decade between 2012 and 2022.
Approximately 80% of the value of goods exported are accounted for by pharmaceuticals and machinery.
Delving deeper into the data, it finds the declines are concentrated in vaccines and semiconductors.
It speculates that the decline in exports of vaccines may be due to a fall off in demand following the Covid-19 pandemic, while the fall off in exports of semiconductors may be due to trade tension between the US and China.
“The decline in trade in the first half of 2023 is a reminder of the wider risks to the Irish economy from the concentration of exports in a small number of highly globalised, multinational-dominated sectors,” the report states.
The Director of Economics and Statistics at the Central Bank said bank expects inflation to stay “broadly unchanged” this year, but it should drop gradually over 2024.
Speaking on Morning Ireland, Robert Kelly said that inflation should be around 5.4% this year but should drop to 2.3% by 2025, Robert Kelly said.
He warned the Government against some of its budgetry proposals, saying they could fuel inflation.
There is less room for growth in the economy over the next couple of years, he added.
He said that some targeted, sustainably funded supports could be given to those households most in need.
Robert Kelly also said the Central Bank is predicting “marginally weaker growth over the horizon”.