OECD joins EU in predicting Irish economy will contract as exports engine slows 

However, it said the overall picture showed that Ireland’s economy remains in good health. The contraction in Irish GDP this year reflected conditions in the global economy, and were “not specifically related to the Irish economy at this stage”, Patrizio Sicari, an economist on the Irish desk at the OECD in Paris, told the Irish Examiner.

The Ireland forecasts are just one part of its global outlook which warn that heightened global uncertainties, a weaker trading outlook, and higher interest rates will hit demand for Irish exports, and for medical and pharma products, in particular. GDP, which last year expanded by 9.5%, will nonetheless grow by 2.4% in 2025, it projected.

Under an alternative measure, modified domestic demand, or MDD, which can more accurately reflect conditions for many households, the Irish economy will not contract. The OECD said under the alternative measure that economic output here will grow by just over 2% this year and by 1.7% in 2024.

The OECD report also reassures about the slowing growth in corporate tax receipts.

Mr Sicari said that corporate tax revenues had fallen this year in relation to expectations, but were still running at significant levels, while “Vat and income taxes from employment were remaining strong”.

Michael McGrath: ‘Overall outlook remains positive’  

Finance Minister Michael McGrath said he was surprised that the OECD had forecast a contraction in GDP, but added that it was more important to focus on the modified domestic demand measure.

“GDP is a particularly volatile measure of economic activity and we acknowledged the possibility that GDP as a measure could be in negative territory across the year, though that remains to be seen and can be quite volatile,” Mr McGrath said.

“What I do take comfort from is the overall outlook, which remains broadly positive.

“It is in line with the projections we set out on budget day, which does provide for continued growth in the Irish economy in terms of modified domestic demand this year, and next year.”

The OECD report is nonetheless the second forecaster this month to predict a contraction in economic output here this year, in terms of GDP.

In its autumn forecasts, the European Commission said the economy will contract by almost 1% as the changing fortunes of some of the many multinationals based here weigh on exports and output.

The EU predicted that export outlook would be more positive in 2024 and in 2025, “although somewhat less dynamic when compared to previous years”.

It noted that pharma exports and so-called contract manufacturing by multinationals, in particular, have been hit by reduced demand for their goods exports, while “by contrast” the tech giants, which sell services such as software to world markets, were maintaining “robust growth”.

And earlier this month, the International Monetary Fund had chided the Government for its expansionary budget, but said the overall outlook for the economy remained upbeat, albeit “clouded by considerable external risk”.

For its part, the OECD said in its report yesterday that increases in consumption and incomes as inflation eases will “pave the way” for a pick-up form the middle of next year.

But it also warned the Government, saying “fiscal caution and structural reforms are key to long-term welfare gains”.

While Ireland remains exposed to global risks, the report said that slowing rates of inflation would help businesses to invest more, and that strengthening demand for Irish exports from the US would also lift output.