Ireland flag Ireland: Economic and Political Overview

The economic context of Ireland

Economic Indicators

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, supported by strong domestic demand and the activities of multinational companies operating in the country. Following two years of double-digit growth, Ireland’s real GDP growth weakened significantly in the first half of 2023 to a modest 0.1% increase year-on-year. For the year as a whole, the IMF estimated growth of 2% amid tighter financial conditions, supply-side constraints, and weakening external demand (although the latest Irish Central Bank projection was at 1.5%). GDP is expected to accelerate by 3.3% in 2024 and 3.2% in 2025, underpinned by increased external demand, buoyed by a robust labour market and rising real wages, which are expected to bolster consumption levels.

Public finances remained sound over the course of the year: the general government budget balance remained in surplus in 2023, at 2.6% of GDP as per the IMF (0.9% according to the EU Commission's latest figures). This year and the next the surplus is expected to contract to 1.8% of GDP. Revenue growth during these years is anticipated to be sustained by resilient, albeit slower, private consumption. Additionally, the gradual phase-out of VAT discounts is projected to contribute to revenue increases. Expenditure growth in 2024 should be propelled by investment plans and substantial social spending initiatives. The Budget for 2024 outlines a comprehensive strategy aimed at addressing both short-term and long-term objectives. This strategy includes a deliberate and planned approach to public spending geared towards achieving economic, social, and climate aspirations, supported by a credible method for managing expenditure in the medium term. It also emphasizes the importance of maintaining flexibility to effectively address immediate challenges as they arise and continuing successful measures to mitigate the impacts of elevated inflation. The total Government expenditure ceiling for 2024 is set at EUR 96.6 billion, comprising core expenditure of EUR 91.2 billion and an allocation of EUR 4.5 billion for non-core expenditure intended to address externally driven temporary challenges. Due to the fiscal surplus and robust nominal GDP growth, the general government debt-to-GDP ratio is predicted to decline from 42.7% in 2023 to 39% in 2024, further decreasing to 35.7% in 2025 (IMF). During the initial nine months of 2023, Harmonized Index of Consumer Prices (HICP) inflation was elevated. The prolonged interval in the transmission of wholesale to retail prices for gas and electricity contributed to enduringly high energy costs in Ireland. Moreover, other prominent HICP categories similarly maintained heightened levels compared to the preceding year. For 2023 as a whole, the IMF estimated inflation at 5.2%. The inflation rate should decrease to 3% this year and 2.4% in 2025, reflecting the impact of the ECB’s monetary tightening and the moderation of growth and labour market tightness.

Throughout 2023, employment levels demonstrated resilience, remaining robust. The surge in employment was bolstered by an expansion in the labour supply, attributed to heightened female participation and inward migration, which significantly augmented the labour force. While additional employment growth is projected for 2024 and 2025, it is expected to occur at a more restrained pace, aligning with the sustained anticipated expansion of the domestic economy. The unemployment rate, estimated at 4.1% in 2023, should therefore record a marginal increase to 4.4% by 2025 (IMF). Wage pressures have been increasing, resulting in nominal wage growth of 5% in 2023 with a further increase to 5.5% expected in 2024. These trends reflect the constraints of a tight labour market and an adjustment of wages to compensate for the significant decline in real incomes observed in 2022. Overall, Irish citizens enjoy one of the highest GDP per capita (PPP) in the world, estimated at USD 126,905 in 2023 by the World Bank.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 533.56589.57629.59667.34699.87
GDP (Constant Prices, Annual % Change) 9.42.03.33.22.7
GDP per Capita (USD) 103,311112,248117,979123,693128,312
General Government Balance (in % of GDP) 2.92.61.81.81.6
General Government Gross Debt (in % of GDP) 44.442.739.035.733.2
Inflation Rate (%) n/a5.23.02.42.0
Unemployment Rate (% of the Labour Force) 4.54.14.24.44.4
Current Account (billions USD) 57.5345.7045.5347.3547.02
Current Account (in % of GDP) 10.87.87.27.16.7

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Agriculture represents 1% of GDP and employs 4% of the Irish labour force (World Bank, latest data available). The primary sector remains a key pillar 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 sector manages 4.5 million hectares of agricultural land and 808,848 hectares of forestry. The Irish agri-food sector is globally orientated, with approximately 90% of Irish beef, sheepmeat and dairy produce exported each year. According to the CSO, the value of agricultural output at basic prices increased by 28% to EUR 12,894 million in 2022. The average family farm income was EUR 45,809 in 2022, a year-on-year increase of 32%.

The Irish industrial sector - which accounts for 41.5% of GDP and employs 19% of the active population - is a diverse landscape comprising traditional and emerging industries. Historically, Ireland's industrial sector has been dominated by pharmaceuticals, biotechnology, and medical devices, with multinational corporations such as Pfizer, Johnson & Johnson, and Boston Scientific having significant operations in the country. In recent years, emerging sectors such as renewable energy, information and communications technology (ICT), and financial services have gained momentum, fueled by government initiatives and a skilled workforce. The country's commitment to research and development, coupled with favourable tax policies, has attracted investment in areas like clean technology, cybersecurity, and fintech. Data by CSO show that, on an annual basis, production in manufacturing industries was 30.6% lower in the three months from August to October 2023 when compared with the same period in 2022.

The service sector accounts for 52.6% of GDP and employs more than three-quarters of the labour force (77% - World Bank). Key sectors include financial services, where Dublin serves as a prominent European financial hub, hosting numerous international banks, insurance companies, and fintech startups. Ireland's tourism industry is also vital. Moreover, the country has a thriving technology and digital services sector, bolstered by the presence of major tech companies like Google, Facebook, and Microsoft, which have established significant operations in Ireland. Emerging sectors in the Irish tertiary landscape include cybersecurity, data analytics, and e-commerce.

 
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:

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:

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

 

Country Risk

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Latest Update: April 2024

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