John Lahart (Dublin South West, Fianna Fail)
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45. To ask the Minister for Finance the action that he is taking to address economic uncertainty and reduced consumer and business confidence; and if he will make a statement on the matter. [30135/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The war in Ukraine and the associated economic and financial sanctions represents a large supply-side shock to the global economy. While Ireland’s direct exposure to the impacts of the war is limited, second round effects have been significant, with higher energy and commodity prices acting as the main transmission channel from the war to the Irish economy. We are already seeing the impact of higher commodity prices, with inflation in Ireland reaching a multi-decade high of 8.3 per cent in May.

The pass through effect of soaring energy prices will also be reflected in rising costs for both businesses and households. These factors, alongside heightened uncertainty, will hold back consumer spending and investment this year. Indeed, modified domestic demand (MDD) – the best measure of domestic economic activity – declined by 1 per cent in the first quarter as consumers and businesses scaled back spending and investment. At the time of SPU 2022, my Department forecast MDD growth of 4¼ per cent for this year. However, as set out in the SPU, there are numerous downside risks to this projection.

The Government is acutely aware of the cost pressures currently facing households and businesses and has responded to help alleviate some of this burden. On a cumulative basis, the Government has announced €2.4 billion in cost of living measures since last October. These measures have included changes in tax and social welfare, the provision of an energy credit for households, a temporary reduction in the rate of VAT on the supply of gas and electricity and a reduction in the excise rate for petrol, diesel and marked gas oil.

Whilst the Government will continue to work to help with the cost of living challenge, we must be cognisant that resources are limited and we cannot cushion households and businesses from the entire impact of the current shock. Furthermore, in calibrating how we respond to the current challenges, it is important that we strike the right balance and ensure policy doesn’t inadvertently add further inflationary pressures into the system.