As 2024 unfolds amidst continued global challenges, Loretta O’Sullivan outlines why the island of Ireland will still likely see some economic growth
We are just a few weeks into 2024 and it has already acquired many labels. It's the year of rate cuts, war and global elections.
Despite this, the all-island economy is expected to be a year of growth.
EY Ireland's Winter Economic Eye report forecasts reasonably solid growth in the Republic of Ireland (ROI) and a modest expansion in Northern Ireland (NI).
Outlined below are the four forces we see shaping both economies in 2024.
1. A subdued external environment
The world economy is recovering from a multitude of shocks – the COVID-19 pandemic, the war in Ukraine and decades-high inflation. The likelihood of a soft landing has increased, but geopolitical tensions, including the conflict in the Middle East and the Red Sea attacks, are among many headwinds.
Prospects for key trading partners in 2024 are mixed, with growth set to slow in the US, but due to pick up in the Eurozone and the UK.
2. A turn in monetary policy
After introducing a series of interest rate hikes in 2022 and 2023, the European Central Bank and the Bank of England are both on hold. Higher borrowing costs are expected to weigh on business spending decisions in 2024.
Proactive digitalisation and decarbonisation agendas should provide support, however, and we can look forward to rate cuts later this year.
The Irish government is also undertaking a large-scale capital spending programme to enhance public infrastructure and underpin digital and green transitions.
In NI, the restoration of power-sharing and a Stormont Executive should encourage future investment.
3. Inflation is on the retreat
Inflation has eased significantly and the passing on of lower wholesale energy prices to household bills and business costs, coupled with the transmission of monetary policy to economic activity, points to further easing ahead.
In ROI, an inflation rate of 3.0 percent is forecast for 2024, falling to 2.0 percent in 2025. This downward trend will alleviate pressure on household purchasing power and improve consumer confidence, which bodes well for consumer expenditure.
4. Warm labour markets
While the ROI and NI labour markets put in a strong performance in 2023, signs of softening are beginning to emerge and some cooling is likely this year.
Nonetheless, unemployment rates are projected to remain low by historical standards and many businesses will continue to experience staff recruitment and retention challenges.
Given the tight labour market and some compensation for past inflation, wage increases are also anticipated.
This year is shaping up to be one of rate cuts, elevated geopolitical tensions and monumental elections. Yet, amidst these events, households and businesses can likely expect to see some growth across the two economies on the island of Ireland.
Loretta O’Sullivan is Chief Economist and Partner at EY Ireland
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