Central Bank predicts lower economic growth and higher inflation next year

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Central Bank Predicts Lower Economic Growth And Higher Inflation Next Year Central Bank Predicts Lower Economic Growth And Higher Inflation Next Year
The bank still sees modified domestic demand (MDD), its preferred economic growth measure, expanding by 2.3 per cent next year. Photo: PA Images
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The Central Bank has pushed up its 2023 inflation projections and revised down its forecast for economic growth for the third quarter in row, but expects the drag on disposable incomes to ease in the second half of next year.

The bank still sees modified domestic demand (MDD), its preferred economic growth measure, expanding by 2.3 per cent next year and also revised up its forecast for this year to 6.4 per cent due to a large, likely one-off increase in investment in the first half.

However, it had forecast MDD growth of 4.2 per cent for 2023 three months ago, before a more prolonged period of price pressure from increased energy costs forced it to push up its inflation forecast for next year to 6.3 per cent versus 4.2 per cent previously.

With inflation currently estimated at 8.6 per cent, the bank also nudged up its forecast for 2022 to 8 per cent from 7.8 per cent and said there remains upside risks to the inflation outlook and downside risks to the growth forecast.

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"These developments will dampen the expected pace of economic growth over this winter and into next year as households and firms delay less-essential spending and investments in light of uncertainty and more constrained real incomes," the Central Bank said in its quarterly bulletin.

Its inflation forecasts were lower than those published last week by the Department of Finance, which was also more pessimistic on the outlook for the economy, predicting MDD growth of just 1.2 per cent next year.

The Central Bank said the impact of the energy crisis would likely cut average real household incomes by 3.3 per cent this year, the largest reduction in just over a decade.

A more pronounced pickup in wages - forecast to rise by 5.8 per cent in 2023 - is expected to begin to mitigate the impact somewhat in the second half of next year, it added.

On the recent economic turmoil in the UK, the Central Bank said a less favourable growth path there would have only slightly negative implications for Ireland's outlook while a larger appreciation of the euro in relation to the pound would lead to weaker inflation, given the level of imports from Britain. -Reuters

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