The Irish economy experienced a robust recovery in 2021, due in large part to an easing of public-health restrictions, a recovery in consumer demand, and strong export activity, a new ESRI report has found.

GDP and Modified Domestic Demand (MDD) grew by 12.5% and 6.5%, respectively.

However, a number of challenges are likely to impact on further growth in the year ahead. Most notably, Russia’s invasion of Ukraine will have significant impacts on the global economy, the report finds.

Increases in consumer prices are likely to accelerate as the conflict disrupts energy markets. As a consequence of higher prices and greater uncertainty in global trade and investment, the ESRI expects GDP and MDD to be lower in 2022 than previously forecast.

At present, the ESRI anticipates GDP to increase 6.2% in 2022, with MDD growing 5.0% over the same period.

Inflationary pressures, which had already been mounting in the latter half of 2021 due to supply-chain problems and a rapid recovery in consumption, is likely to intensify as a consequence of the invasion of Ukraine.

Sanctions

Economic sanctions imposed on Russia and disruptions to supply are likely to persist and feed into consumer prices. Given these uncertainties, the ESRI expects average inflation of 6.7% in 2022, and 5% in 2023.   

Further improvements in the unemployment rate are expected, with an average jobless rate of 6.3% in 2022 to fall further throughout 2023, reaching 4.5% by Q4 2023.

Author Kieran McQuinn said: “While the outlook for the Irish economy is still positive in 2022 and 2023, the impact of the Russian invasion of the Ukraine will lower the expected growth rate of the Irish economy and lead to higher rates of domestic inflation."