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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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Denmark to start conscripting women for military service

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Denmark has announced significant reforms to its military, including extending conscription to women for the first time and increasing the standard service duration. This decision is part of a plan to bolster its defense capabilities and align with NATO targets amid heightened tensions in Europe following Russia’s invasion of Ukraine in 2022.

Prime Minister Mette Frederiksen emphasized that the aim of these reforms is not to seek conflict but to prevent it. The government intends to achieve gender equality in the armed forces, with Defence Minister Troels Lund Poulsen stressing that more inclusive conscription will address defense challenges and contribute to national mobilization.

Denmark will become the third European nation, after Norway and Sweden, to mandate women’s conscription starting from 2026, alongside extending service duration for both genders from four to 11 months. These changes aim to increase the number of individuals serving in the military annually from 4,700 to 5,000, with approximately 25% being women.

With a current armed forces strength of around 20,000 personnel, Denmark, with a population of nearly six million, plans to raise its military spending from 1.4% to 2% of GDP to meet NATO’s requirements. Lawmakers have taken measures such as abolishing a public holiday to redirect funds towards defense spending.

Denmark has been a staunch supporter of Ukraine, providing advanced weapons, financial aid, and training to Ukrainian pilots on F-16 fighter jets. Additionally, Finland and Sweden have recently joined NATO as the alliance strengthens its defenses in Europe amid ongoing geopolitical tensions.

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Germany to cut green spending to meet budget rules

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German Chancellor Olaf Scholz has announced that his coalition reached an agreement on the budget following a month of crisis talks. The decision comes after Germany’s constitutional court declared next year’s budget illegal for violating laws on new borrowing. The government plans to adhere to low deficit commitments by cutting certain green subsidies, including ending solar energy and electric car subsidies earlier than initially planned.

Last month, the constitutional court ruled that the 2024 budget violated a clause prohibiting Germany from running a deficit exceeding 0.35% of GDP. Although the deficit was a small portion of total spending, around €17bn or 3.8% of the €450bn budget, negotiations to address the gap were challenging. The coalition parties disagreed on whether to cut spending or suspend debt rules for the fifth consecutive year.

Ultimately, the coalition agreed to reduce subsidies for green energy, construction, and transportation spending. Chancellor Scholz emphasized that the government remains committed to its environmental goals but acknowledged the need to achieve them with reduced funding. The cuts will accelerate the phase-out of subsidies for electric car purchases and solar energy infrastructure, as well as change the funding structure for Germany’s railways.

Reduced spending on the electrical grid will lead to higher electricity costs for consumers. However, approximately €3bn in subsidies to polluting industries will be cut, and the carbon emission prices for companies will increase, partially offsetting the environmental cutbacks.

While the German government, a major supporter of Ukraine in Europe, assured that support for Ukraine would remain unaffected, it will send about €8bn in aid next year. All three coalition parties claimed victories in the spending agreement, with the Social Democrats limiting cuts to the welfare state, the Free Democrats preventing new borrowing, and the Greens asserting that core environmental aims are maintained despite some rolled-back schemes.

Germany’s political culture strongly opposes debt and deficits, with an aversion to high spending. However, some economists argue that this aversion has resulted in persistent underinvestment in crucial infrastructure. Despite this, Germany has one of the lowest public debts among major developed countries.

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