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Irish economy expected to grow in next two years

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A prominent think tank, the Economic and Social Research Institute (ESRI), has projected solid growth for Ireland’s domestic economy in the next couple of years, driven by decreasing inflation and rising wages. They anticipate a 2.3% growth in modified domestic demand (MDD) for this year, followed by a 2.5% increase next year. MDD is a metric that filters out the influence of multinational corporations on Ireland’s economy. In 2023, MDD only saw a modest 0.5% growth due to factors like inflation and higher interest rates dampening spending and investment.

Despite a strong post-pandemic recovery, Ireland’s economic momentum slowed notably in 2023, partly due to increased inflation which hindered household finances. The ESRI noted a lack of real pay growth during 2022 and 2023. Real pay, adjusted for inflation, is a key indicator of changes in living standards. Both the ESRI and Ireland’s Central Bank anticipate an increase in real pay this year.

Traditionally, Gross Domestic Product (GDP) serves as the primary measure of economic performance; however, Ireland’s GDP is heavily skewed by multinational activities. Official data indicated a 3.2% contraction in Irish GDP in 2023. Usually, Irish GDP overestimates economic growth, but recent trends have shown the opposite, partly due to decreased sales and exports from US pharmaceutical companies’ Irish operations post-pandemic. The ESRI anticipates a recovery in Irish GDP over the next two years, driven by global trade improvements.

The ESRI also underscored the pressing need for Ireland to address well-documented infrastructure challenges, particularly in areas like housing, renewable energy, and public transport. Notably, plans for an underground rail link connecting Dublin Airport to the city center have reached the public planning hearings stage after more than two decades since the project’s inception.

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Russia hikes interest rates to 15% as inflation soars

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The Central Bank of Russia has raised its key interest rate to 15% in an effort to tackle inflation and support the struggling rouble, marking the fourth consecutive increase. The unexpected two-percentage-point hike was prompted by the persistently high global inflation rates, partly triggered by Russia’s military intervention in Ukraine, which has led to a 6% inflation rate in Russia as of September.

The country has been experiencing escalated government spending directed towards its military efforts, contributing to the recent inflationary pressures. With the latest hike, the Bank of Russia has cumulatively raised the rates by 7.5 percentage points since July, aiming to stabilize inflation at the targeted 4% level. The decision for the emergency rate hike in August was prompted by the rouble’s decline, which fell below 100 against the US dollar, necessitating a tighter monetary policy.

The global supply chain disruptions during the pandemic, coupled with the repercussions of Russia’s invasion of Ukraine, have notably impacted food and energy prices, driving the overall inflation up. Additionally, the imposition of Western sanctions on Russia in response to its actions in Ukraine has had adverse effects on the country’s economy, causing a significant depreciation of the rouble. The sanctions have led to constraints on Russia’s trade, with several European countries seeking alternative energy suppliers and implementing measures to limit Russia’s oil export earnings.

Despite the successive rate hikes, there are concerns that Russia may encounter challenges in attracting foreign investment due to the ongoing sanctions. The exclusion of Russia from the Swift international payment system has further added to the economic strain. Nonetheless, the European Commission has affirmed that the sanctions are effective in exerting pressure on Russia.

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