Rising Domestic Demand and the Road to Long-Term Economic Growth in Ireland: Insights from the Economic and Social Research Institute

Ireland’s economy expected to experience growth over the next two years

The Economic and Social Research Institute (ESRI) has predicted that Ireland’s domestic economy will see solid growth in the next two years, with modified domestic demand (MDD) expected to increase by 2.3% this year and 2.5% next year. MDD is a measurement that eliminates the impact of multinational companies on Ireland’s economy, providing a more accurate representation of domestic economic activity.

Inflation and higher interest rates affected spending and investment in 2022, leading to a slow growth rate of just 0.5% for MDD. The economy recovered strongly from the pandemic but slowed significantly in 2023, with higher inflation putting a strain on households and limiting real pay growth. Real pay, adjusted for inflation, is an important measure of changes in living standards, and it is essential for economic growth and stability.

Gross Domestic Product (GDP) is the typical measure of economic performance, but it is heavily distorted by multinational activities in Ireland. In 2023, Irish GDP actually shrank by 3.2%, reflecting the impact of US pharmaceutical firms coming off their pandemic highs. The ESRI anticipates a rebound in Irish GDP over the next two years as global trade improves.

The think tank highlighted the importance of addressing infrastructure bottlenecks as a critical challenge for Ireland’s economy moving forward. This includes issues related to housebuilding, renewable energy, and public transport. For example, plans for an underground rail link between Dublin Airport and the city center have been in the works for over 20 years, underscoring the need for timely and efficient infrastructure development to support economic growth and prosperity in Ireland.

In conclusion, while inflationary pressures slowed down Ireland’s domestic economy slightly last year, MDD still shows positive prospects for growth over the next two years at least 5%. Furthermore, with proper investments in infrastructure development like housing projects or green energy initiatives that are crucial to sustainably fueling long-term prosperity within our nation.

The ESRI also highlighted that while GDP may not be enough to accurately represent Ireland’s economy due to multinational activities; MDD provides a better understanding of domestic economic activity which could help policymakers make more informed decisions about how best to allocate resources towards supporting sustained economic growth

Leave a Reply