The Irish economy might create up to 167,000 jobs in the next two years as the epidemic fades and consumer spending returns to normal, the Central Bank said.
In its recent quarterly report, the regulator warned that rising energy costs will lead to “generalised cost of living increases” in the short term.
The economy is forecast to grow by 8.7% this year and 5% next year, driven by robust domestic demand, rising incomes, and solid exports.
It predicted a faster decline in unemployment and a return to full employment by 2024. 7 % unemployment is anticipated to reduce to 5.3 % next year and 4.9 % in 2024.
The improving economic outlook should lead to increased taxes and better public finances. Next year’s budget is predicted to be modestly surplus.
“Despite the Omicron variation, the economy is proving resilient,” said Mark Cassidy, director of economics and statistics at the Central Bank.
“The economy is already recovered to its pre-pandemic level, and we expect it to attain its potential level of activity by 2024,” he said.
“Some sections of the economy, particularly hospitality and the arts, are still enduring major expenses emanating from Covid,” Mr Cassidy said.
The pandemic, according to an ESRI and Department of Finance research published earlier this week, has increased the number of loss-making enterprises in Ireland by 50%.
In December, inflation hit a 21-year high of 5.5%, the Central Bank noted in its report.
Higher inflation is projected later this year “as acute pandemic-related effects and energy price growth lessen in importance”, the report stated.
That’s the ECB’s view. However, the International Monetary Fund (IMF) cautioned Wednesday that supply-chain disruptions and high energy costs will endure in 2022.
It focused on the US, where headline inflation is at a 40-year high of 7%.
Spiral of wages-price
Regulators and central banks fear that if companies and workers raise prices and demand higher wages, a wage-price cycle would result.
Despite signs of wage pressures, the Central Bank says they are not widespread, indicating labour shortages and productivity gains in specific industries rather than generalised cost of living hikes.
It warned that when the labour market tightens, “second-round effects” could occur, with increased wages and other corporate costs being passed on to consumers.
The agency also warned that increased public and private housing spending might lead to capacity bottlenecks and higher costs. Borrowers took up €10.5 billion worth of home loans in 2021, the highest amount since the financial meltdown more than a decade ago.