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Ibec downgrades growth outlook, warns of ‘misjudged’ reactions to inflation

Business group Ibec has scaled back its outlook for growth for this year to account for the economic impact of rising costs and supply chain challenges, exacerbated by the Russian invasion of Ukraine.

The group estimates that the war will knock somewhere between 1 and 2 percentage points off the rate of growth relative to the 6.1% it had forecast at the end of last year.

It now anticipates economic growth of around 4.3% in the year ahead.

Energy and commodity prices will remain much higher for longer, Ibec expects, even if growth in inflation – currently running at a 22 year high of 6.7% – slows down.

It warns that any “premature or misjudged” monetary policy reactions to the inflationary environment could trigger an unnecessary economic contraction.

“This coming year will be a tight balancing act for policymakers globally,” the report warns, adding that measures to support households and businesses must be “tightly targeted” to avoid further stoking inflation.

“Ibec is calling on Government to intensify work through the Labour Employer Economic Forum to ensure better coordination and targeting of tax, social welfare and other labour market policies that can address inflationary pressures,” Gerard Brady, Chief Economist and Head of National Policy with Ibec said.

Overall consumer trends in the opening months of the year captured the strong momentum underlying the economy with retail sales volumes in the first two months up 12% on the same period in 2019.

But Ibec warns that the global environment will drag on growth this year and next, with rising energy costs, record commodity and transport costs and global supply chain challenges resulting in a slowing of business investment and lower than previously expected consumer spending.

“Rising energy prices will introduce a relative price shock to consumer spending,” Mr Brady said.

“This is where households when faced with higher spending on energy bills, cut back on consumption elsewhere. Overall consumption remains unchanged but other sectors of the economy – particularly those reliant on discretionary spending – lose out,” he added.

The challenges of commodity inflation are already evident in parts of the economy, the report notes, which has the potential to hurt the capacity to deliver housing and infrastructure.

“It is vital that Government works with industry to ensure that contracts are adaptable to the challenges of inflation and that it remains viable for much needed infrastructure projects to continue to address the multiple quality of life and sustainability issues the country faces,” Mr Brady added.

Article Source – Ibec downgrades growth outlook, warns of ‘misjudged’ reactions to inflation – Brian Finn – RTE

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