The European Commission has published its spring forecasts for the European Union, euro area and selected European economies for 2023 and 2024. Modified Domestic Demand is projected to grow by 2 percent and 2.3 percent in 2023 and 2024 respectively. This is broadly in line with forecasts published by the Department of Finance in April. The euro area is projected to grow by 1.1 percent this year and by 1.6 percent in 2024.
The Minister for Finance Michael McGrath TD commented:
“The Commission is anticipating a more positive economic outlook than in its winter forecast, with lower energy prices, improved business confidence and a strong labour market helping to boost economic activity across the continent. Euro area GDP is projected to increase by 1.1 per cent this year, an upward revision of 0.2 percentage points from the Commission’s winter forecasts.
I also note the Commission’s projections for the Irish economy. The Commission forecasts GDP growth of 5½ per cent for this year, an upward revision of 0.6 percentage points since the winter forecasts. Modified Domestic Demand (MDD) – which better reflects domestic economic activity – is projected to grow by 2 per cent this year and 2.3 per cent next year, broadly in line with my Department’s spring forecasts published in the Stability Programme Update (SPU) last month. The Commission projects an easing in headline inflation to 4.6 per cent this year and 2.6 per cent next year, though with core inflation remaining elevated, in line with my Department’s expectations. According to the Commission, the comparatively strong rate of growth in the Irish economy reflects the continued dynamism, a labour market at full employment and related strength in private consumption.
The Commission forecasts another large budget surplus for this year and next, while noting the potential volatility of future corporation tax receipts. Indeed, that is why I am developing proposals for a long-term savings fund that will be capitalised with some portion of windfall receipts and future budgetary surpluses. The options for such a fund are explored in a paper released by my Department last week.
Looking ahead, I continue to be optimistic about the Irish economy, which has shown remarkable resilience in the face of a weak global economy. Ireland is now at close to full employment with an unemployment rate of 3.9 per cent recorded in April, the lowest rate in over two decades. As inflationary pressures continue to ease, real household disposable income is set to recover and will support consumer spending growth, while the fading of the energy price shock should also support higher levels of investment by firms."
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