Can the Irish economy deliver 4.4% growth next year?

The headline quote from the report is that Ireland is on the cusp of rapid growth. Taken at face value, there is little enough to argue against in that hypothesis. The expectation from the Bank of Ireland-owned stockbroker is that Irish economic growth will increase to 4.5 per cent this year, with only a marginally lower economic growth prospect for next year. Part of the calculation for 2024 is already baked in. As we enter quarter three, the economy is on course for the 4.5 per cent estimate. With all the economic and political headwinds potentially facing the global economy over the next 18 months, assurances on a 4.4 per cent growth rate for the Irish economy for 2025 cannot be guaranteed. Think Trump, China/EU/US trade stand-offs, continuing and potential military escalations in Ukraine and the Middle East, and there is more cause for caution than optimism regarding economic growth prospects. 

Drivers

The Davy economic forecast is based on
2 per cent employment growth this year as well as rapidly increasing housebuilding. These economic drivers are reinforced by low inflation and continuing budget surpluses. The certainty that the current Government will spend that surplus in the October budget to garner votes in the soon-to-follow general election, could, in turn, as the Davy report notes, drive up inflationary pressures above the desired 2 per cent. That would reduce the 4.4 per cent growth forecast by Davy for 2025.
The Davy report warns that threats to competitiveness must be tackled to avoid a slowdown in foreign-direct investment (FDI) and job creation. The mechanisms to avoid this are not clearly set out. We already have among the highest energy prices in the EU with further hikes in carbon taxes in the offing. Add in the restructured EU corporate tax rates and we have a further erosion of our popularity as an FDI destination.
Davy points to investment of €30bn being needed to meet the target of 5GW of offshore and 11GW of onshore wind and solar capacity by 2030. Private capital to meet these targets is readily available. What is in considerable doubt is the ability of would-be developers to overcome the considerable regulatory and planning barriers to these developments, certainly in a six-year timescale. While some tweaking of planning regulations has been implemented, inordinate delays will continue to hinder development. 

Population growth

If Davy’s population growth forecasts up to 2030 are realised, then current expectations under the National Planning Framework (NPF) will be completely displaced. As quoted in the Davy report, the NPF estimate is a population of 5.5 million by 2030, assuming a continuing high immigration trend. Davy’s figure is almost 500,000 ahead of that. A six million population figure, if realised, would pose considerable government expenditure pressures. Housing, education, health, social welfare and job creation targets would all be impacted. Significant economic stresses would only be manageable if that 4.4 per cent Davy economic growth forecast for next year continues indefinitely. House builds alone would require up to 85,000 new units annually up to 2030, a figure that is not realistically achievable in that timeframe. 

Unknowns

Ultimately, the Irish economy is heavily reliant on the health of the global economy, with a large FDI sector, an agriculture industry that exports 90 per cent of production, and an increasing reliance on foreign labour. Our economic wellbeing in the years ahead will depend on a reduction in military/political tensions in eastern Europe and the Middle East, a calming in the rising trade tensions across the world, especially between the US and China, as well as a return to lower interest rates. None of these is a given.