Cormac Devlin (Dún Laoghaire, Fianna Fail)
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53. To ask the Minister for Finance if he will be updating economic forecasts for 2022; and if he will make a statement on the matter. [20527/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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My Department published updated macroeconomic projections for 2022 in the draft Stability Programme Update (SPU) on 13th April. These projections are prepared against a backdrop of the war in Ukraine and the associated economic and financial sanctions.

The main channel through which the war is impacting the economy is through higher energy and commodity prices. Higher energy prices have resulted in higher inflation, which is now expected to peak at 6¾ per cent in the second quarter and average 6¼ per cent for 2022 as a whole. Higher input prices, global supply chain disruptions and a tight labour market are also adding to non-energy or ‘core’ inflation.

The pass through effect of soaring energy prices will be reflected in rising costs for businesses and households. Rising costs will undermine business profitability and reduce household purchasing power. This, alongside heightened uncertainty will see firms hold back investment. As a result, my Department has revised down our growth forecasts for this year – as measured by modified domestic demand (MDD) - by 2¼ percentage points, and now expects growth of close to 4¼ per cent in 2022.

One positive development since the autumn forecasts has been the recovery of the labour market, with the level of employment now at its highest ever level. Given the strong rebound in employment last year, employment growth is now set to slow over the course of 2022 in keeping with the overall outlook. The unemployment rate is projected to close the year at 5½ per cent and by end of next year we should be approaching full employment.

Given continued geopolitical uncertainty, however, the margin of uncertainty around these projections is significant, with the balance of risks firmly tilted to the downside. In light of this uncertainty, my Department published an additional, more severe scenario as part of the SPU, in which wholesale oil and gas prices return to their early-March levels and remain elevated relative to baseline this year and next. In this scenario gas and oil prices would be around 75 and 50 per cent respectively above the price assumptions underpinning the central economic forecast. In this scenario, inflation would peak at around 9¼ per cent in the third quarter and average 8¼ per cent in 2022; the shock would weigh on consumer spending and MDD growth as well.

Government is acutely aware of the growing challenges many households and businesses face, particularly given rising price pressures. The priority is to minimise the impact on those who are most impacted; the Government can help, but cannot fully insulate all from the burden of higher energy prices.