Ireland’s Domestic Economy on the Rebound: Modified Domestic Demand and Challenges Ahead

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

Ireland’s domestic economy is expected to 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, according to the Economic and Social Research Institute (ESRI). MDD is a measurement that eliminates the impact of multinational companies on Ireland’s economy, providing a more accurate representation of domestic economic activity.

However, 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 several challenges facing Ireland’s economy moving forward. Addressing infrastructure bottlenecks was identified as a critical challenge, including 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.

Overall, while there are challenges ahead for Ireland’s economy, the ESRI remains optimistic about its future prospects with continued improvements in global trade and timely investment in infrastructure development.

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