Ireland is entering a period of more moderate economic growth, Ibec forecasts in its latest outlook, with expectations of weaker domestic demand next year following on from the recent confirmation that the economy is in a technical recession.
It comes on the back of a significant slowdown in global economic growth following a period of sustained increases in interest rates, which Ibec believes may have been overdone by central banks.
The business representative group says the "softening" global picture is now being reflected in falling goods exports and slowing investment levels here.
It follows a year of mixed fortunes for the economy with rising employment and buoyant consumer spending, which came in the aftermath of strong post-Covid recovery as well as record fiscal expansions.
That was tempered by falling goods exports, volatile corporate tax receipts and weakening investment.
"Whilst some of these headline measures are linked to the activities of a small number of companies, there is also a strong expectation of of a continuing moderation of economic activity in 2024," the report noted.
Following growth in domestic demand of 3.2% this year, Ibec is forecasting that the measure will decline to 2.3% next year before recovering to 3% in 2025.
It warns that the full impact of rising interest rates globally has yet to work its way through, with a lag of about 12 to 18 months likely.
"With inflation falling to 2.4% in the euro zone in November, and purchasing managers indices showing weakening sentiment, there is now a significant chance that central banks may have overcorrected globally," Ibec says.
For mortgage holders on tracker rates in particular, the full effect of rate rises has already been felt, but for those on fixed or variable rate mortgages, the interest rate effect may not be experienced for some time.
That, in turn, will impact consumer spending, which is expected to fall back to 3% growth next year following growth of 3.8% in 2023.
Ibec expects inflation to continue moderating in the years ahead on the back of falling energy, commodity and producer prices.
"The Irish economy has had a spectacular four years of growth, outstripping any of our major partners in terms of exports, investment and employment," Gerard Brady, Chief Economist with Ibec, noted.
"We are now entering a period of consolidation where those gains are not reversed but businesses have a much greater focus on areas like cost and competitiveness," he concluded.
Mr Brady told Morning Ireland that the extraordinary period of growth that we had witnessed in recent years could not last.
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"The global economy is slowing. We see interest rates rising, a lot of our trading partners are starting to see slowdowns and because of that we expected slower growth in the coming years," he said.
Much of the slowdown is being driven by the moves by Central Banks to tackle inflation with interest rate hikes.
Mr Brady said they would likely come under pressure to cut rates in the coming months.
"If you look at major euro zone economies, particularly Germany, we've seen really significant slowdowns and inflation falling at the same time, so it's now more likely that rates will go down rather than up," he said.
He indicated that an initial rate cut as soon as March of next year was a possibility.
On yesterday's confirmation of a bounceback in corporate tax receipts in November following a few months of weakness, Gerard Brady said lessons should be learned from the last year around the 'concentration risk' on a few firms when it comes to the overall tax base.
"Things went ok yesterday. We got strong corporate tax receipts, and that's really important. But it does speak to continuing to use those tax receipts for sensible things like investment that are one off measures rather than building them into the base of current expenditure," he said.
The employment market is expected to slow down in the year ahead, Ibec believes, and is already showing signs of slowing but the level of joblessness is unlikely to rise significantly.
"We still expect unemployment to be very low for a period of time," Mr Brady said.
"The biggest concern we have in terms of the labour market is the addition of government costs that we think will add about €4 billion to labour costs over the coming years, starting in 2024. That's the big concern for business," he concluded.
