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Ireland faces recession year, European Commission says

Final confirmation of growth won’t be clear until the end of the year.

However, Ireland’s gross domestic product (GDP) — which includes all multinational transactions, including volatile aircraft leasing and patents — is now tipped to shrink by 0.9pc across the year, according to European Commission estimates.

GDP is to pick up to 3pc in 2024 and 3.4pc in 2025, following double-digit expansion in the pandemic years.

Modified domestic demand, which strips out volatile transactions and is a better reflection of Ireland’s homegrown economy — is set to expand by 2.3pc this year, before slowing to 1.9pc in 2024 and 2.1pc in 2025.

The predictions contrast with those of Irish officials, who say the country could escape negative growth despite two quarters of negative GDP already this year. The economy shrank 1.8pc between July and September, compared to the previous quarter, and 4.7pc compared to the previous year.

“Shifts within certain multinational-dominated sectors along with lower external demand have been weighing on exports,” the European Commission’s aid in its latest economic forecast.

“The pharmaceutical sector’s growth has slowed after the pandemic-linked boom, and semi-conductors and contract manufacturing sectors have seen decreased exports.

“The export outlook is expected to be negative in 2023 but turn positive in 2024 and 2025, although somewhat less dynamic when compared to previous years.”

Inflation is set to fall back to 5.3pc this year, from over 8pc last year, before falling further to 2.7pc next year and 2.1pc in 2025.

The budget is expected to remain in surplus out to 2025, while debt is to fall to just over 40pc of GDP the same year, well below the EU’s 60pc maximum.

Meanwhile, the EU economy is faltering due to the high cost of living, subdued global trade and higher interest rates.

GDP growth in the 27-member EU and the 20-member eurozone is expected to come in at 0.6pc, above Ireland’s, but slightly lower than projected in the summer.

GDP growth is forecast to improve to 1.3pc in 2024 and 1.7pc, in 2025.

In the euro area, GDP growth is forecast to be slightly lower, at 1.2pc in 2024 and 1.6pc in 2025. Inflation is estimated to have reached a two-year low in the euro area in October and is projected to continue declining from 6.5pc in 2023 to 3.5pc in 2024 and 2.4pc in 2025.

In the euro area, it is forecast to fall from 5.6pc in 2023 to 3.2pc in 2024 and 2.2pc in 2025.

“We are approaching the end of a challenging year for the EU economy,” said commission economy chief Paolo Gentiloni.

“Strong price pressures and the monetary tightening needed to contain them, as well as weak global demand, have taken their toll on households and businesses.

“Looking ahead to 2024, we expect a modest uptick in growth as inflation eases further and the labour market remains resilient.

“The unfolding conflict in the Middle East has so far had a limited economic impact outside the region, but heightened geopolitical tensions have further increased the uncertainty and risks clouding the outlook.”

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