The Central Bank has slightly adjusted its growth forecasts for the domestic economy this year, expecting continued moderate growth over the next three years.
Predictions now indicate that Modified Domestic Demand (MDD) will expand by 2.2% in the current year, down from the previous forecast of 2.5% in December. This downward revision is attributed to weak global demand and domestic capacity constraints hampering growth.
Nevertheless, in its initial Quarterly Bulletin for this year, the bank has upheld its previous forecasts for the subsequent two years, projecting MDD growth at 1.9% in 2025 and 2% in 2026.
Despite the downward adjustment in expected domestic economic output for the current year, the Central Bank has slightly raised its GDP projections for 2024. It now anticipates a 2.8% increase in GDP, up from the previous estimate of 2.5% three months ago.
However, the bank foresees a slightly slower GDP growth rate in 2025 and 2026 compared to its earlier expectations, reflecting a global slowdown in growth and trade.
Additionally, the Central Bank has marginally revised its inflation forecasts downward for this year, citing a faster-than-expected disinflation process. It now predicts that the Harmonised Index of Consumer Prices will average 2% for 2024, dropping further to 1.8% the following year.
This adjustment is primarily attributed to external factors such as declining energy prices and the normalization of supply chains. However, the bank cautions that domestic price pressures, particularly in services with a sustained 5% rate of price increase, are now the primary drivers of inflation. These pressures are expected to gradually ease between now and 2026.
Furthermore, the bank notes that core inflation, excluding energy and food prices, is likely to remain higher than headline inflation until 2026.
"Global headwinds and domestic capacity constraints are affecting the growth of the Irish economy," said Robert Kelly, Director of Economics and Statistics.
"Disinflation has been significantly progressing and external price pressures have largely passed. However, domestic price developments – especially in the services sector – have been more persistent."
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Central Bank lowers forecast for domestic economic growth
The Central Bank has revised downwards slightly its forecasts for growth in the domestic economy this year, but still expects that it will continue to grow at a moderate pace over the next three years.