A slowdown may already be under way in certain sectors of the domestic economy, according to Ibec.

In its latest economic quarterly outlook, the business group says shifts in global capital markets and ongoing increases in commodity prices - especially energy - are undermining the recovery seen in the first half of the year.

"Leading indicators and feedback from members suggest a slowdown is already under way in the growth rate of the two drivers of the domestic economy, consumer spending and investment, and this will continue into 2023," the report says.

"Ibec expects consumer spending growth to fall from 6.6% to 4% in 2023 and domestic investment to fall from 8.6% to just under 4%," it concludes.

The report points to an expected softening of consumer trends in the second half of the year as heating usage increases along with energy unit pricing and consumers begin to feel the squeeze from rising interest rates.

The European Central Bank last week announced its first interest rate increase in eleven years with a hike in rates of 0.5%, and more increases are expected in the months ahead.

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"The Irish economy is at a turning point. Changes in the global environment - in commodity, energy and financial markets - are reshaping the global economy from the one we have recognised over the past decade," Gerard Brady, chief economist with Ibec said in his commentary.

"The era of record low interest rates, low inflation, and spare capacity we have lived through since the global financial crisis is being overturned," he added.

Mr Brady pointed out that the open nature of the Irish economy meant that shifts in the flow of capital and slowdowns in our major trading partners left us vulnerable to 'outsized impacts' on our growth.

"Our members are already experiencing this through tighter capital markets and a greater focus on costs," he said.

The report notes the strength of consumer spending in the first half of the year which overall kept ahead of the pace of price inflation.

Allowing for inflation of around 7.5% for the full year, Ibec expects a dampening of household spending power in the months ahead.

While acknowledging that many households have the combined resources of pay and savings to sustain their spending levels, despite inflation, others do not.

A study by the Central Statistics Office yesterday demonstrated the unequal effect that inflation is having on households with those on lower incomes experiencing an effective inflation rate that was about 2 percentage points higher than that for higher earning households.

"There is a need to support those exposed to the downside of inflation," Mr Brady said.

"These supports should, however, be targeted at those businesses and households which are most in need. It is crucial that progress ongoing on an energy grant support scheme to help businesses through this challenging period is delivered in a timely manner," he concluded.

On the employment front, Ibec is forecasting that the unemployment rate will average at around 5% for the year.

It notes that while demand for additional workers remains high in many sectors, there have been some signs of a marginal fall back in demand for labour amid rising cost pressures for businesses.