Business group Ibec has downgraded its forecast for domestic demand due to rising costs and a weaker outlook for the global economy.

In its latest Quarterly Economic Outlook, Ibec said domestic demand will grow by 3% in 2023, a downgrade from close to 4% in its previous set of forecasts in July 2022.

The report states that the international economy is in a place of significant challenge due to high rates of inflation, rising interest rates, accelerated monetary tightening and volatile energy markets.

For 2023, Ibec is forecasting that GDP will grow at a rate of 2%.

Speaking on RTÉ's Morning Ireland, Ibec Head of National Policy & Chief Economist Gerard Brady said a more aggressive approach by central banks was part of the reason for its downgrade.

"What we've seen that has changed is central banks reaction to those rising costs and inflation across the global economy," he said.

"We now see quicker paces of interest rate hikes, quicker paces of monetary tightening across the global economy, and because of that a lot of our major trading partners - because of this reset to normal interest rates in particular - are predicted to be in recession in 2023.

"For a small, open economy like Ireland that's obviously going to spill over into our own growth rates - even though we still expect growth next year in the Irish economy."

Ibec's report says that while Ireland will avoid a recession, households and businesses will feel the slowdown in many of our major trading partners.

"For some it will [feel like a recession]," Mr Brady said. "We see across the business community lots of our members suffering from really significant costs - particularly on energy, but more broadly".

"And that will cause challenges for a lot of companies," he added.

We need your consent to load this rte-player contentWe use rte-player to manage extra content that can set cookies on your device and collect data about your activity. Please review their details and accept them to load the content.Manage Preferences

According to the outlook, further monetary tightening by central banks carries risks for both financial stability and the broader global economy throughout next year.

"The big question into 2023 is how successful central banks are at reducing inflation over the next 12-18 months," Mr Brady said. "If they're successful, this is a reset, a transition that will go on for a year or 18 months and pass.

"If they're not then we could see a longer period of challenge for lots of households and businesses across the economy."

However, Ibec said that Ireland has the tools available to weather the storm, with Government and consumer finances in relatively good condition.

"The Government still have a budget surplus and have put away a lot of saving in terms of money over the last year and into next year, which will help," he said. "If needs be the Government do have the firepower, unlike a lot of other countries."

Mr Brady said that the support measures in Budget 2023 were putting money in the right direction, and it would become clear over the winter if they were enough to help firms struggling with higher costs.

Ibec said that measures such as the Temporary Business Energy Support Scheme should be timely and adequate in order to protect the business economy throughout the winter.

"We also see households with record savings rates, so some households do have buffers which will help them through the next year or so," he said.

While the open nature of Ireland's economy also made it more exposed to global shifts, Mr Brady also said it would help accelerate any pick-up in growth in the future.

"We, unlike the rest of Europe, aren't purely tied to the European economy, which is probably the worst performer of the major economies next year," he said. "We also have a tie-in to the US which is predicted to do a lot better [next year]."