BoI revises GDP outlook, but expects healthy growth

Bank of Ireland has downgraded its outlook for growth in Gross Domestic Product (GDP) to 1% this year and 3.9% in 2025.

The bank had previously guided GDP growth of 1.5% for 2024 and 4% next year.

The downwards revision was accounted for mainly by distortions associated with the multinational sector rather than any material slowdown.

The bank’s chief economist, Conall MacCoille, said it was possible that GDP could contract again this year, but that consumer spending, employment and most macroeconomic indicators would continue to expand.

“It is clear the Irish economy got off to a healthy start to 2024. We have revised up our forecasts for the growth of consumer spending (3%), employment (1.7%) and modified domestic demand (2.5%) in 2024, with unemployment expected to stay close to 4%,” Mr MacCoille explained.

“A tailwind is that wages are now rising faster than inflation, helping households’ real incomes, also aided by the tax cuts in Budget 2024. The gradual recovery in the euro area and UK is also helping, as is the rapid growth in public spending.”

He said that as pay increases and inflation had stayed largely within European norms, there was little threat to competitiveness so far.

“However, given the advanced stage of Ireland’s economic cycle, the key risk now is potential overheating from capacity pressures, housing and infrastructure bottlenecks and labour shortages. There is a risk of persistently high inflation in Ireland, even as it recedes in Europe allowing the ECB to cut interest rates,” he added.

The bank is anticipating house price growth of 4% this year, despite expected housing completions accelerating to 37,000 units this year, 41,000 in 2025 and 45,000 in 2026.

Despite improved homebuilding levels, the bank expects it will still likely fall short of buoyant housing demand.

The unemployment rate is set to remain low, averaging 4.3% in 2024 and 4.4% in 2025 and 2026.

“Nonetheless, we still expect jobs growth to slow from the relatively high rates of recent years, from 3.4% last year, to 1.7% in 2024 and 1.5% in 2025,” Conall MacCoille said.

The bank anticipates that consumer price inflation will average at 2.3% in 2024 before easing back to 2% in 2025 and 2026.