Dáil Éireann Debate, Thursday - 5 October 2023
160. Deputy Richard Bruton asked the Minister for Finance how the international economic outlook will bear on Ireland’s economic performance and budgetary strategy; and if he will make a statement on the matter. [43047/23]
View answerThe outlook for the international economy remains subdued, with downside risks to the fore. The OECD, for instance, is projecting global GDP growth of just 3 per cent this year in its most recent forecasts – well below the historical average, and prospects in our key trading partners also remain weak. Moreover, there remains considerable uncertainty surrounding international economic prospects. Core inflation could persist for longer than expected among our key trading partners with the potential for further policy tightening. Meanwhile risks to global trade from potential spill-overs associated with a continued weak Chinese economy and increasing geo-political tensions would further weaken the fragile international outlook.
As a small, open economy, Ireland is particularly exposed to weakening demand among our trading partners with potential implications for Irish exports, GDP and tax revenues. Indeed, in the first half of the year, we have seen subdued GDP growth of just 0.2 per cent, reflecting a softening in Irish exports linked to a weak global economy.
Despite the global slowdown, the domestic economy has proven resilient to date. Nowhere is this more evident than in the labour market, with the unemployment rate remaining around historically low levels at just over 4 per cent for most of this year. Both modified domestic demand – my preferred measure of domestic economic activity – and consumer spending also displayed robust growth of around 1 per cent in the second quarter of this year.
From the perspective of budgetary strategy, the best way in which we can ensure that our economy remains resilient in an uncertain international economic environment is by maintaining our public finances on a sustainable path. Government has adopted a budgetary strategy based on linking core public expenditure growth to the trend nominal growth rate of the economy. Over the medium term this is estimated to be around 5 per cent per year.
In recognition of continuing inflationary pressures, in Budget 2024 net core spending will be allowed to increase by 6.1 per cent next year. This approach strikes the appropriate balance between giving Government the necessary scope to assist with the increased cost of living, while also continuing to invest in our public services and addressing capacity constraints and still ensuring that our public finances remain on a positive trajectory over the medium term.
In conclusion, I am conscious of the need to ensure the continued resilience and competitiveness of the Irish economy. My Department will continue to closely monitor the risks to the international outlook and the Government will respond to risks as required to protect and promote the Irish economy.
