The central bank said the economy is expected to continue to grow strongly this year.
Its latest quarterly bulletin expects the local economy to grow at just over 7% in 2022.
However, inflation is expected to be higher for a longer period than previously thought, although it is expected to wane in the second half of this year.
The latest bulletin from the central bank said that the economic impact of the Omicron wave of Covid-19 was smaller than the previous stages of the pandemic.
There was also an increase in consumption. That includes people spending more on goods and services, and the bank expects more pandemic savings to be spent that will continue to boost the economy.
A faster recovery has resulted in more people returning to work at a record-high rate for the proportion of women in the workforce. There has also been a significant increase in part-time employment for younger workers.
The recovery was also good for public finances, which are expected to move into a surplus of 3.4 billion euros next year.
But inflation remains a concern. It is expected to average 4.5% this year. Energy prices are expected to stabilize but not fall.
The Central Bank warned that gas prices could rise further in the event of the Russian invasion of Ukraine.
Mark Cassidy, director of economics and statistics at the central bank, said the uncertainty surrounding Russia’s intentions was already one of the factors driving up international gas prices, affecting the electricity and gas prices that households and businesses have to pay here.
“The strong economic recovery and extreme weather conditions have depleted Europe’s natural gas reserves, making Europe more dependent on imports from Russia,” Cassidy said.
« Anything that calls into question the availability of these supplies from Russia will put further upward pressure on already high prices. »
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The central bank still believes that much of the current rise in inflation is linked to energy prices on international markets. He notes that in November, European gas prices were 470% higher year-on-year, benchmark Brent crude 87% higher while coal was 140% higher.
All this led to a 30% increase in household energy bills in December year-on-year with transportation costs rising by a similar amount.
However, the bank also believes that based on prices in the futures markets, which indicate where the market thinks prices will be in the coming months, prices will stabilize later this year. But it will take longer for them to come down.
High rents in the private sector, which are up around 8% year-on-year, is another factor driving prices higher in Ireland.
Wages rebounded in many sectors of the economy. The central bank’s high vacancy rates lead to the conclusion that there is room for widespread wage growth.
The rapid improvement in the labor market now threatens to add another volatile element to the mix. The prospectus says that « …with the tightening of the labor market, there is potential for second-round effects through higher wages and other business costs that will move into consumer prices in the coming years. »
The unemployment rate is expected to drop to 5.8% this year.
The bank notes that recent employment gains have been led by more women joining or returning to the workforce, raising the female participation rate to 59.8%, an all-time high. Jobs are concentrated in professional services and education and are primarily full-time and highly skilled.
Cassidy said it is a very welcome phenomenon. « We don’t have clear reasons, » he said. « These sectors may have attracted more females, but they may also be a magnet for more flexible working arrangements, and that would be an important development with an eye toward the future. »
There has also been a significant takeover of part-time jobs by young workers, a trend that has occurred in other countries as well. The Bank is not so sure these jobs are sustainable as many companies rely on programs like the Employment Wage Support Scheme.
The economy in general has been very resilient throughout the pandemic, and the bank is paying particular attention to the ICT sector.
The sector added more jobs (8,596) than any other sector in 2020. It also has the highest weekly earnings and contributed €5 billion in corporate tax and income tax combined, surpassed only by the manufacturing sector.
The report also notes that contract manufacturing, where companies based in Ireland have products made for them overseas but still count as « Irish » exports, increased in value by €35 billion in the first three quarters of last year.
This accounted for 36% of the increase in the value of exports during this period.
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