EU forecasts return to growth for Irish wages this year as inflation cools

"In 2025, based on unchanged policies, revenue and expenditure growth rates are projected to revert to their long-term trend, with a broadly neutral impact on the budget surplus estimated at 1.2%," it said in the Ireland economic report, which is part of its Europe-wide economic outlook. 

The report also said that "buoyant revenue growth matched increases in public sector pay and investment" in 2023. The outlook comes after business groups, and hospitality firms in particular, have put the focus on rising costs, including labour costs. 

Irish inflation will average 1.9% this year, down from 5.2% in 2023, but will be little changed at 1.8% in 2025, according to the forecasts.   

The Commission also projects that the domestic economy will grow 1.7% this year and by 2.4% in 2025, as measured by modified domestic demand, which helps to avoid distortions to the national accounts caused by the activities of the large number of multinationals based here. 

The improving global exports outlook will likely be reassuring because multinationals pay the lion's share of the almost €24bn the Government collected in corporation tax receipts last year. The Commission projects that GDP, after sliding in 2023, will grow by 1.2% this year, and expand by 3.6% in 2025.   

"Pharmaceutical exports slowed down after the surge during the pandemic, and semiconductor exports also declined. Additionally, a fall in contract manufacturing — i.e. goods produced outside of Ireland on behalf of Irish resident firms — contributed to the downturn last year," the Commission said.   

Meantime, unemployment will remain at around its historically-low levels for the State at 4.4%, according to the forecasts. Growth in the Irish economy, in terms of GDP, will be in line with the 1% expansion projected for the whole of the EU this year, and higher than the 0.8% expansion expected for the eurozone-wide economy. 

Ireland will be among the very few eurozone economies to run budget surpluses, the forecasts show. However, the Commission said the forecasts take account of assumptions around the war in Ukraine, about the number of refugees from Ukraine, and are based on assumptions that the war in Gaza "does not escalate geographically". 

"Despite two ongoing wars in our neighbourhood and increasing geopolitical tensions, the EU economy managed to stage a comeback in the first quarter of the year and the conditions for gradual acceleration of economic activity this year and next remain in place," economic affairs chief Maarten Verwey said in a commentary. 

"With continued deceleration of inflation and labour market strength, consumption is emerging as a key driver for the economic expansion. Easing of credit conditions and further deployment of NGEU [an EU-wide investment programme] will support a recovery of investment activity, though more gradually than previously expected. Finally, an improved outlook for global merchandise trade should support EU’s external demand for goods, in turn helping to lift the prospects of the weakened manufacturing sector," Mr Maarten said.