The economic context of Ireland

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Since the end of the EU-IMF bailout in late 2013, Ireland has enjoyed steady economic growth, and positioned itself as the fastest growing European economy. The national economy has been supported by strong domestic demand and by the activities of multinational companies operating in the country. After recording an exceptional growth in 2021 (+13.6%), Ireland’s economy grew at a slower pace in 2022 (+9%) but remained very dynamic. Economic growth is supported by strong interior demand boosted by the full relaxation of the pandemic-related restrictions and dynamic exports from multinational-dominated sectors (IMF). The IMF expects GDP growth to ease to 4% in 2023 and 2024. The war in Ukraine, persistent inflationary pressures fuelled by supply bottlenecks and layoffs in the multinational tech sector will negatively affect growth (IMF and The Economist Intelligence Unit).

Despite the war in Ukraine and the global energy crisis, the Irish economy remained resilient in 2022. In addition to the strong financial performance of multinational companies, consumer and domestic firms’ spending were stimulated by the lifting of COVID-19 restrictions. The government implemented various measures to deal with the consequences of the war in Ukraine, including lower VAT on gas and electricity, discounted fuel prices, reduced public transport fares and allowances for less well-off households (Coface). The wide package adopted in September to support households and SMEs against inflation in 2022-2023 represented 2.6% GDP (OECD). As a result of the various fiscal packages, Ireland's previously balanced budget was pushed into deficit in 2020 (-5.1% GDP) and 2021 (-1.7% GDP), but it returned to a small surplus in 2022 (0.4% GDP) due to the surge in corporate tax revenues (IMF). According to IMF estimates, the budget should remain in surplus in 2023 (0.5% GDP) and 2024 (0.7% GDP). Taking into account the  to the transient nature of corporate tax revenues, the government decided to put EUR 6 billion of windfall tax gains in the National Reserve Fund by 2023 (OECD). Public debt, which is relatively modest compared to the Eurozone average, is expected to continue to decrease, from 47.0% GDP in 2022 to 42.8% GDP in 2023 and 39.2% GDP in 2024 (IMF). In addition to the pandemic-related supply chain delays, the war in Ukraine led to the surge in the prices of many commodities (oil, gas, metals, cereals) in 2022. From 2.4% in 2021, inflation soared to 8.4% in 2022 (IMF). It is expected to remain high in 2023 (6.5%) before declining to 3% in 2024 (IMF). The Budget 2023, coined as a ‘cost of living’ budget, aims at tackling inflation and supporting households and businesses. In addition to these short-term objectives, the priorities are also to ensure sustainable tax receipts, to reinforce the country’s resilience against future shocks, to address housing and health issues and to tackle climate change. Measures include tax credits, refunds, changes in tax rates and rate bands, extension of incentive schemes etc. (PwC) Global economic uncertainty over the war in Ukraine, high inflation, and the volatility of tax revenues that are highly dependent on the activity of multinationals are the main challenges. In the medium term, higher corporate tax rates and tensions around the implementation of the agreement between the European Union and the United Kingdom could deteriorate business climate (OECD).

According to data from the National Statistics Office (CSO), after soaring due to the effects of the COVID-19 pandemic, unemployment rate decreased to 4.3% in December 2022. IMF figures indicate an unemployment rate of 4.7% in 2022, and forecast a slight increase to 4.8% in 2023 and 2024. In November 2020, the COVID-19 Adjusted Measure of Unemployment (considering all claimants of the Pandemic Unemployment Payment (PUP) classified as unemployed) indicated a rate as high as 20.4% (CSO).

Main Sectors of Industry

Agriculture remains a key sector as the government seeks to strengthen its role in the economy by modernising it and transforming the food processing industries (beef, dairy, potatoes, barley, wheat). The beef and dairy categories are the largest and account for nearly 70% of Gross Agricultural Output (GAO). Other sectors to have a share in GAO include pig, sheep and cereals. Agriculture represents 1% of GDP and employs 4% of the labour force (World Bank, 2021).

Ireland's recent industrial development was achieved through a deliberate policy of promoting advanced export-oriented enterprises, and partly through attractive offers for investors. The sector accounts for 37.8% of GDP and employs 19% of the active population (World Bank). Textiles, chemicals and electronics perform particularly well.

The service sector accounts for 55.4% of GDP and employs more than three-quarters of the labour force (77%) (World Bank). Banking and finance have grown to such an extent that Dublin counts now as an important international financial centre, while tourism has become an important source of foreign exchange earnings. In 2021, tourism contributed to 1.2% of total GDP or EUR 5.1 billion, with 127,900 people employed according to the World Travel and Tourism Council (WTTC).

In 2022, despite the global crisis triggered by Russia’s invasion of Ukraine, Irish economic sectors remained resilient. The govenment put in place an energy support scheme to help businesses tackle inflation.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	4.5	18.8	76.7
Value Added (in % of GDP)	1.1	41.1	52.3
Value Added (Annual % Change)	2.3	22.7	6.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

81,4/100

World Rank:

5

Regional Rank:

2

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

7.48/10

World Rank:

22/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Sources of General Economic Information

Ministries

Department of Enterprise, Trade and Employment
Department of Agriculture, Food and the Marine
Industrial Development Agency

Statistical Office

Central Statistics Office

Central Bank

European Central Bank
Central Bank of Ireland

Stock Exchange

Irish Stock Exchange

Economic Portals

The Economic and Social Research Institute