Ireland’s Economic Rebound: The Importance of Modified Domestic Demand and Addressing Infrastructure Bottlenecks

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

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

Inflation and higher interest rates affected spending and investment in 2022, leading to a slow growth rate of just 0.5% for MDD. Despite this, the economy recovered strongly from the pandemic but slowed significantly in 2023 due to higher inflation putting a strain on households and limiting real pay growth. Real pay, adjusted for inflation, is an essential measure of changes in living standards and plays a critical role in economic growth and stability.

While Gross Domestic Product (GDP) is typically used as a measure of economic performance, 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 addressing infrastructure bottlenecks as a critical challenge for Ireland’s economy moving forward. This includes 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, such as addressing infrastructure bottlenecks and dealing with inflationary pressures, there are also opportunities for continued growth if these challenges are addressed effectively.

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