In this Report Series No. 36, NERI Co-director, Dr. Tom McDonnell discusses the current economic situation and the upcoming Budget 2025.
The Republic of Ireland’s labour market and its economy have never been stronger despite the damaging impact of the pandemic and the recent cost of living pressures. While the employment growth of recent years is not sustainable there is limited evidence of a downturn in the economy.
The post-pandemic boom period of pent-up demand and economic recovery has come to an end. Even so, the short-run economic outlook remains positive with moderate and broad-based growth likely over the next year.
This assessment is based on an expected loosening of monetary policy; an expansionary fiscal policy; an increase in real disposable income as wages outstrip inflation in the context of a tight labour market; improving household and business confidence as price pressures recede, and an outlook for modest but positive growth in Ireland’s main trading partners.
Modified domestic demand and exports should both grow by close to 2%. Price pressures will ameliorate as inflation falls to close to 2% this year and next, while the economy will remain close to full employment albeit with a slowing in the rate of employment growth. There are of course uncertainties. Major downside risks include but are not limited to weakness in trading partners, political turmoil in the US and radical shifts in trade policy, rising geopolitical tensions, and further shocks to the cost of energy imports.
There is little justification for an expansionary budget in this type of macroeconomic environment. Ideally, a countercyclical approach would be pursued in Budget 2025 with the necessary investments in public spending financed by targeted increases in government revenue and no further once-off supports added on budget day.