Ireland: Macroeconomic Country Outlook
- GlobalData forecasts Ireland’s real GDP to grow at a slower pace of 5%, due to a potential global slowdown
- Ireland ranked 27th out of 152 nations in the GlobalData Country Risk Index (GCRI) Q2 2022
- According to GlobalData, the industrial production index of the country contracted by an average annual rate of 7.5% on an annual basis during January 2022 to June 2022
Ireland, like most other OECD and EU countries, has experienced rapid growth in the services sector; in fact, its significance in the international market has far surpassed expectations of the Irish government. In 2021, the services sector generated 58.3% of Ireland’s total GVA. The ICT sector is the leading component of the internationally traded services sector of Ireland. Other major sub-sectors include financial services, creative industries, supply chain management and logistics, healthcare services and education traded services. In 2021, the services sector grew by 5.2%, and is forecast to further grow by 4.9% in 2022. Ireland’s economic recovery plan aims to upskill and reskill its vulnerable workforce.
Key findings
- Irish economy to register a slow growth in 2022: The government has been able to control the spread of COVID-19 since June 2020, leading to a better fiscal position than many other countries. An effective vaccination program and prudent government spending led to a quick rebound in economic activity. The economy grew by 10.8% in Q2 2022, compared to 13.8% in Q4 2021. The Irish economy grew by 13.5% in 2021. GlobalData forecasts the real GDP to grow by 5.1% in 2022, a slowdown from last year as the economy is facing multiple challenges of high price level, interest rate rise, and slowdown in economies of trading partners.
- Labor market stays tight in Ireland: According to EuroStat, the unemployment rate decreased from 4.6% in April 2022 to 4.3% in September 2022, indicating that the labor market has continued to recover from pandemic. According to Eurostat, the employment rate increased to 78.9% in Q2 2022 from 78.1% in Q1 2022, marking the highest level in a decade. This gain was primarily due to participation of female and younger-age cohorts. In Q2 2022, the employment rate for people aged 15 to 64 was 73.8%, up from 73.4% in Q1 2022. The number of hours worked per week also increased by 17.6% from Q1 2021 to Q1 2022.
- Ireland ranked 24th out of 190 countries in the World Bank’s doing business ranking in 2020: According to World Bank, Ease of Doing Business Report (2020), Ireland ranked 24th out of 190 countries with a score of 79.6. In order to start a business in Ireland, it takes three procedures and 11 days as compared to the OECD high income average of 4.9 procedures and 9.2 days. Ireland ranked fourth in terms of paying taxes and 13th in terms of protecting minority investors. However, it ranked 91st in terms of enforcing contracts and 52nd in terms of trading across borders.
- 5G in Ireland: In order to promote and facilitate digital transformation of the Irish economy and society, the Irish government unveiled a new national digital strategy called "Harnessing Digital - The Digital Ireland Framework" in March 2022. The government pledged to improve digital infrastructure by ensuring that everyone can connect, particularly by providing 5G to all densely populated areas by 2030. In Q3 2021, the Irish regulator, ComReg published data on the number of mobile 5G subscribers for the first time. From Q3 2021 to Q4 2021, 5G mobile voice and mobile broadband (MBB) subscriptions climbed 31.4% quarter over quarter.
- Ireland has a strong political system: Ireland’s governance indicators are good, with a 95.2 percentile in 2021 on the voice and accountability parameter, according to the World Bank, Worldwide Governance Indicators (2022). This parameter measures the extent to which citizens of a particular country are able to participate in selecting their government, along with the freedom of expression, freedom of association, and availability of free media. The country ranks high due to its openness and liberal attitude toward the press. The country’s percentile ranking for political stability and absence of violence was 83 the same year.
- Ambitious targets for renewable energy sector: According to National Energy & Climate Plan, Ireland aims to develop 5GW of offshore wind by 2030. Moreover, with its newly published climate bill, the Irish government aims to reduce total carbon emissions by 51% by 2030, compared to 2018. The country is ramping up its plans to develop offshore wind with two new large projects in the pipeline. The Moneypoint and Codling wind farms would bring nearly 3GW of offshore wind capacity to the Emerald Isle’s coast over the next decade. The Codling wind farm is developing a 1.5GW project in the Irish Sea, which could produce its first electricity by 2027. The Moneypoint wind farm will be part of a bigger green energy hub replacing Ireland’s only remaining coal-fired power plant, which will be shut down by 2025.
Key fundamentals
Sectoral outlook
- Renewable energy sector is booming in Ireland: Ireland's environment, climate, and communications minister said that the next wave of green energy capacity in Ireland will cost nearly a third more than previous projects, but it will reduce the country's reliance on more expensive fossil fuels. The new solar and wind farms will increase capacity by about 20%, as the government aims to generate majority of its electricity from renewable sources by 2030. Higher prices for key materials used in wind turbines and solar panels, such as steel, copper, and polysilicon, have increased the cost of renewable energy by 32% to EUR97.87 ($104.28) per megawatt hour since Ireland last auctioned projects in 2020. Still, this pales in comparison to the soaring natural gas and coal prices that have driven up consumer power prices. The construction sector is beginning with a project on the Arklow Bank, where initial turbines could produce 520MW of electricity by 2025. According to Wind Energy Ireland (WEI), floating wind farms can transform Ireland into “a European renewable energy superpower” if right policies are pursued to enable industry to start building floating wind farms in the coming decade. The government plans to have the first dedicated floating wind auction and strategic investment to ensure ports are ready to build and maintain floating wind farms. The program contains a target for 5,000MW of offshore wind energy by 2030.
- Financial Strategy expected to boost the sector: The Central Bank of Ireland published a report on June 15, 2022, stating that medium-term risks have increased in the six months, with focus shifting from pandemic-related distress to concerns about the impact of lower global growth expectations, significant price pressures, and tightening financial conditions. According to the report, inflationary pressures pose new challenges for borrowers, which have been mitigated by the development of resilience over last decade. The Central Bank is updating its macroprudential capital tools strategy, and the Counter-Cyclical Capital Buffer (CCyB) will be its primary tool for ensuring resilience. The CCyB rate will rise to 0.5%, with plans to rebuild to 1.5% by mid-2023.
- Gradual recovery expected for tourism and hospitality industry: According to new research from the Irish Tourism Industry Confederation, inflation in the tourism industry in May 2022 was seven times higher than at the same time in 2019, putting significant cost pressure on the sector. The latest dashboard from the Irish Tourism Industry Confederation for May 2022 shows that the sector's recovery is gaining traction. However, given the current market turmoil, concerns about the pace of recovery beyond the traditional summer season remains. The Tourism Dashboard, produced in collaboration with AIB, compares each month to the same month in 2019, the previous normal year for Ireland's tourism industry. The total arrivals were down 15% in May 2022, compared to the same month in 2019, an improving trend with a 30% year-to-date lag. According to GlobalData, the total number of international arrivals in the country remained same at 2.4 million in 2020 to 2.4 million in 2021 and is forecast to reach 9.2 million in 2022 and 10.2 million in 2023.
GlobalData Country Risk Index (GCRI) – Q2 2022
Ireland ranked 27th out of 152 nations in the GCRI Q2 2022 update. The country’s score is in the very low risk nations band (below 30). Ireland’s overall risk score is higher than other Western European countries (26.1), but lower than the world average (44) in GCRI Q2 2022. The country had an overall score of 27.7 out of 100 and performed well (compared to the Western European average) in the political, legal, and demographic parameters. However, its risk score was higher in the macroeconomic and environment parameters.
GCRI Methodology
GlobalData’s unique Country Risk Model determines the existing and future levels of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources and incorporates proprietary data from GlobalData. Western Europe nations include Denmark, Norway, Finland, Switzerland, Sweden, Luxembourg, the UK, the Netherlands, Germany, Iceland, Belgium, Austria, Ireland, France, Portugal, Spain, Italy, and Greece.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: Ireland
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