Ibec has downgraded its growth forecasts for the Irish economy amid the rising cost of living and global supply chain issues accelerated by the Russian invasion of Ukraine.
According to the latest Economic Outlook report published by Ibec, economic growth is forecast to be 4.3 per cent in the year ahead, a reduction from the 6.1 per cent which was predicted for 2022 in Q4 2021.
Ibec expects that consumer price inflation will run at around 6.1 per cent for the full year, an increase from a 3.3 per cent expectation in the Q4 2021 outlook.
Although the report highlights record savings for Irish households of up to €30 billion since the start of the pandemic, there has yet to be a significant drawdown.
The group has forecast that rising energy prices will force consumers to cut back on consumption elsewhere, which will have an impact on sectors of the economy that rely on discretionary spending.
Meanwhile, retail sales in January and February were up 12 per cent, showing strong recovery coming out of the pandemic.
'Fuel to the inflationary fire'
Speaking at the launch of the report, Ibec chief economist and head of national policy, Gerard Brady, said the global environment will drag on growth this year and next, with rising energy costs and record commodity and transport costs.
Mr Brady said global supply chain challenges are causing a slowing of business investment and lower than previously expected consumer spending.
“Even if inflation growth slows, the level of energy, transport and commodity prices will now remain much higher for longer,” Mr Brady said.
“The net impact of this in economic terms is both a relative price shock for consumers – reducing spending elsewhere – and the postponement and re-evaluation of investments in businesses and construction.”
Pressures in the global economy have been amplified since our December forecasts - by war and further supply chain pressures. This will mean consumer spend on energy, etc, and less elsewhere (a relative price shock) + business invest less due to cost, priorities and uncertainty. pic.twitter.com/SNooq0Zd80
— Gerard Brady (@GerardBrady100) April 25, 2022
Mr Brady said it is important for the Government to work with the industry to ensure contracts are adaptable to the challenges of inflation.
“This coming year will be a tight balancing act for policymakers globally,” Mr Brady said.
“Measures to support households and businesses must be tightly targeted if we are to avoid adding fuel to the inflationary fire.
“At the same time, premature or misjudged monetary policy reactions could trigger an unnecessary economic contraction
“Ibec is calling on Government to intensify work through the Labour Employer Economic Forum to ensure better coordination and targeting of tax, social welfare and other labour market policies that can address inflationary pressures.”
