Cormac Devlin (Dún Laoghaire, Fianna Fail)
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54. To ask the Minister for Finance his current assessment of the consequences that the Russian invasion of Ukraine is having and will have on the Irish economy; and if he will make a statement on the matter. [30069/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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First and foremost the war in Ukraine is a major humanitarian crisis, with devastating consequences for the people affected. Along with the unjust loss of life, millions of people have been forced to flee their homes. As well as the humanitarian crisis, the war and associated economic, financial, and other sanctions represent a large supply-side shock to the global economy, with European countries at the front line.

Reflecting the negative spill-over effects from the war, the OECD has recently revised down its forecast for global GDP growth by 1½ percentage points this year and ½ percentage point next year, relative to their December projections.

Whilst Ireland’s trade links with Russia are small, we are nevertheless, highly exposed to indirect effects arising from the conflict.

The primary channel through which the war is having a negative impact on the Irish economy is through higher energy and commodity prices. Consumer price inflation rose to 8.3 per cent in May, the highest rate in decades. Pass-through price effects are expected to result in price levels rising in other sectors, such as food, transport and consumer goods. Indeed, in recent month core inflation has also been increasing sharply, suggesting that inflationary pressures are becoming increasingly broad-based.

Higher inflation is squeezing the purchasing power of households. Along with the heightened level of uncertainty created by the geopolitical instability, this will dampen growth in the domestic economy. Households are expected to respond to higher prices by reducing their real spending, while firms are expected to hold back on investment.

In addition, while Ireland’s direct links with Russia are limited, many of our key trading partners have stronger trade links with Russia. The war is weighing on demand in some of Ireland’s export markets, with knock-on implications for Irish exports.

The Government is acutely aware of the cost pressures currently facing households and businesses. Whilst the government will continue working to minimise the fall-out on those who are least-equipped to respond, resources are limited and we cannot cushion households and businesses from the entire impact of the current shock.