Lower and middle income families will “feel the pinch” as the economy begins to tank next year, the ESRI think-tank’s Winter economic report has forecast.
The economists at the ESRI (Economic and Social Research Institute) have highlighted trouble coming down the tracks in 2023, with the cost of living crisis worsening, interest rates rising and an international recession all contributing to an economic slowdown.
They said this would mean 2023 will be a “challenging” year for those on lower and fixed incomes.
We now anticipate inflation to average 7.1 per cent in 2023 and expect modified domestic demand to increase by just 2.2 per cent in 2023.
Growth is predicted to finish at 8.4% for this year.
One of the report’s authors, Conor O’Toole, said: “I think you’re going to have lower income households and those on fixed incomes, they’re going to feel the pinch quite considerably, the cost of living increases are very strong, we’ve increased our inflation rate for next year because we think price quotas is rising relative to what we thought before.
“And for many of these households it is going to be challenging.
“However the package of measures that were brought in (by the Government) should provide some insulation for those households.”
The ESRI’s research professor, Kieran McQuinn, added: “The significant challenges confronting the Irish economy in 2023 means inward foreign direct investment must continue to be supported given its importance to the domestic economy.”
The report concluded: “The Irish economy displayed a remarkable degree of resilience in 2022. Our forecast for Modified Domestic Demand (MDD), the more accurate measure of domestic economic activity, is for growth of 8.4 per cent this year on the back of strong investment and consumption growth.
“In the labour market, the unemployment rate has fallen to a near historical low of 4.4 per cent in Q4 2022 and we anticipate employment to remain strong throughout 2023. Due to the strength of exchequer receipts and corporation tax revenue in particular, we now anticipate a significant surplus in the Government Balance for this year and next.
“However, several challenges face the domestic economy in 2023. Recession risks amongst Ireland’s main trading partners, persistent cost-of-living pressures and increases in monetary policy interest rates means that the Irish economy is set to grow at a significantly reduced pace in the near-term.
“We now anticipate inflation to average 7.1 per cent in 2023 and expect modified domestic demand to increase by just 2.2 per cent in 2023.”
Another report from the international think-tank, the OECD (Organisation for Economic Cooperation and Development), also predicted worsening economic growth for 2023.
It forecast that Gross Domestic Product (GDP) and modified domestic demand, the two most commonly used measures of economic growth here, would grow by 3.8 per cent and by 0.9 per cent respectively in 2023, down from 10.1 per cent and 8 per cent this year.
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