Willie O'Dea (Limerick City, Fianna Fail)
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104. To ask the Minister for Finance his assessment of the performance of the domestic economy to date in 2023; and if he will make a statement on the matter. [30030/23]

Michael McGrath (Cork South Central, Fianna Fail)
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I propose to take Questions Nos. 104 and 105 together.

Despite facing substantial economic headwinds over the past year, the Irish economy has proven to be remarkably resilient. This has been reflected in strong domestic economic growth at the start of this year, with modified domestic demand (MDD) growing by 2.7 per cent in the first quarter. It is particularly encouraging to see the broad based nature of this growth with both consumer and investment spending contributing to the robust growth over the first quarter.

Despite facing substantial inflationary headwinds, personal consumption still grew strongly in the first quarter, increasing by 1.7 per cent on a quarterly basis. This resilience in consumer spending is reflective of the strong labour market conditions, with more people at work than ever before and an unemployment rate at historically low levels. Government supports have played key role in helping households to weather the recent economic shocks. Indeed, by responding swiftly and decisively to the cost of living pressures and providing €12bn cost of living supports, government has helped to mitigate the impact of inflationary pressures on both businesses and households.

Whilst inflation remains elevated, it is now clearly on a downward trajectory with wholesale energy prices returning towards more normal levels over recent months. Whilst non-energy or ‘core’ inflation is proving to be more persistent than headline inflation and is expected to decelerate more slowly, it is clear that inflation is loosening its grip with real incomes and consumer confidence on the rise.

Somewhat offsetting these positive tailwinds, has been the rapid tightening of monetary policy over recent months. Just last week the ECB announced a further 0.25-point rate increase, the eighth successive interest rate increase since last summer. Whilst necessary to tame inflation, the increase in interest rates will have knock on implications for the financing burden on both businesses and households.

Against this backdrop, the domestic economy is poised to grow at a robust pace this year, with the pace of growth expected to pick-up over the course of the summer as inflation continues to ease. That being said, we cannot become complacent given the challenges that remain on the horizon, including widespread capacity constraints, particularly in the labour and housing markets, persistently high ‘core’ inflation and the potential for a wage-price spiral to emerge.