Quarterly Economic Commentary, Spring 2023

Abstract

The pace of growth in the domestic and international economies is set to be stronger in 2023 than had previously been expected. While inflation is expected to slow in the present year due to falling energy costs, second round effects may still exert upward momentum on general price levels. Furthermore, while inflation is expected to moderate, price levels are going to remain high which is likely to pose cost of living challenges. Overall, we now forecast that modified domestic demand (MDD) will grow by 3.8 per cent in 2023 and 3.9 per cent in 2024. We expect inflation (CPI) to be 4.5 per cent in 2023 before easing to 3.5 per cent in 2024. Two Boxes in the Commentary assess inflation related issues; Doorley, Duggan and Keane assess the distributional implications of the latest cost-of-living measures introduced by the Government in February while Disch and McQuinn present evidence to suggest domestic inflation may actually be running at a somewhat slower pace than official estimates suggest. In another Box, Disch, McQuinn and O’Toole examine the sectoral contribution to corporation tax receipts in the Irish economy. This highlights the increasingly concentrated nature of these returns. The domestic labour market continues to display a significant degree of resilience. While the ICT sector experienced a significant fall in the numbers employed during 2022, employment levels in the sector appeared to recover swiftly by the end of the year. Employment numbers also show a substantial increase in those employed in the pharmaceutical sector since the onset of the pandemic. The higher-than-expected growth rate in the domestic economy does give rise to concerns about overheating over the short- to medium-term. The economy has performed particularly well during the pandemic and appears to have weathered the energy crisis emanating from the war in Ukraine. In a Research Note to the Commentary, Walsh and Brick estimate the amount of inpatient bed capacity in Ireland in 2023. Their analysis reveals that in the present year there may be a bed capacity deficit of approximately 1,000 inpatient beds. They outline a number of policy measures to address this issue.